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Weekly Bargain Bin Blue Chips Update Q3 Week 4

204 views  2012-07-27 18:10   Tagsblue  chip  bargain  bin  below  book  value 

Blue Chip Stock (my def.) = Minimum market cap 1B + Minimum 10 continuous years of dividends.
Market Price = Book Value + Premium for future growth.

The Dow closed at 13,075.66 today, up +1.97% from last week. The DJIA is up +97.31% from its 5-year low on March 6, 2009 and down -1.97% from its post '09 high of 13,338.66 on May 1.

I missed last week's bargain blue chips update and have been looking forward to this week's closing prices. Unsurprisingly (the Dow goes up, the Dow goes down) the Dow Jones Industrial Average passed through the 13,000 level. It is still my view that no matter how high the market pushes up the Dow in the short and medium term (next couple years), the day of reckoning for the sins of the banks is coming. Whether it begins next year, 2014 or 2016 I do not know. I do know that when leadership of sovereign nations finally get together to flush out the banking sector, there will be a time for the psychotic Mr. Market to throw his tantrum and the poor fellow will cause the Dow to fall back down to at least 6,000.

Meanwhile, it is still Western banks (ex-Canada and Australia) that are evidencing their weak balance sheets by historically low price-to-book-value. I will venture a guess at this stage in the game that investors need to start examining the banking sector in a search for the premium banks of the future. Is it too far out to imagine that the Chinese, Hong Kong, Singaporean and Canadian banks will end up buying outright or majority stakes in the famous names of Western banking yesteryear? In the future case that the strong banks get to buy up the weak ones (irrespective of nationality), it is the book-value-plus stocks that will be absorbing the book-value-minus ones. Such a scenario only comes around once a lifetime and astute investors need to be ready to deploy capital into the strong hands.

A preliminary list of strong blue chip banks that I have in my list of to-analyze companies include: Royal and TD banks from Canada, the Chinese banks ICBC, China Construction Bank and Agricultural Bank of China, OCBC, UOB and DBS from Singapore and to round out the sector, Westpac from Australia and Nedbank from South Africa. I will take a look around for the best South America banks to add to this list.

Bargain Bin Blue Chips
Meanwhile, the following blue chip stocks are trading below half of price-to-book-value. Besides the troubled and corrupt European banks there are two bad-fundamentals Japanese tech companies new to this list: Sharp and Sony. Both these companies are continuing their respective steady declines. I won't begin looking at these two Japanese tech stocks until they go below price-to-tangible-book, their business are so bad.

Near Bargain Bin Blue Chips
As far as the near bargain bin'ners, we have six from the Americas, twelve from Asia and eleven from Europe.  From the Americas, the list of blue chips trading below 0.8 p/b remains the same from two weeks ago.

From Asia, the new addition to the list is Kyocera Corp, the Japanese technology components supplier for the information and communications markets and end environment and energy market. Rising significantly is SK Telecom out of South Korea. The stock went from a May 31st low of $11.14 to its current price $13.69, a nice 22.9% rise in two months. I would expect that medium term holders of this stock will hold until it reaches $20. The company reports steadily rising earnings, a flat profit margin and steadily growing assets. It is likely the stock falls back down to near $11 again before it hits $20 yes?

From Europe, the list of blue chips trading below 0.8 p/b has grown by one: STMicroelectronics, the semiconductor company out of Switzerland. Their five-year financials show uneven earnings, mildly improving profit margin, declining assets and declining cash flow.

The rest of the stocks in this list have fluctuated inconsequentially with the exception of Nokia which has risen from $1.69 on July 17th to its current price of $2.11: a nice gain of 24.9%! Too bad I didn't buy more shares at the lower price, LOL. I have been dollar-cost-averaging down since February starting at a price of $4.96. My last purchase was at $2.86 per share on the 18th of May. My next price target is $1.50, but now it looks like the stock is rocketing away from that low price. I don't believe this rise will last as Nokia still has a lot to prove and a lot of suffering to bear in the smart phone wars. However, it looks as if the CEO's cost-cutting measures together with decreased quarterly losses have brightened the picture for the time being. I have a ten-year holding plan for my Nokia shares and will only begin selling above $10.

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