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Weekly Bargain Bin Blue Chips Update Q3 Week 5

175 views  2012-08-03 22:41   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 13,096.17 today, up +0.12% from last week. The DJIA is up +97.62% from its 5-year low on March 6, 2009 and down -1.82% from its post '09 high of 13,338.66 on May 1.

What can be said about a week in which the Dow is flat? A lot. The fact is this week has seen many U.S. congressmen/women and Senators wake up to the fact that Glass Steagall is the first step to bring the financial system to order, for it has become obvious to all that it has run amok. HR 1489 is the bill being proposed to reinstate the Glass-Steagall act that was repealed in '99. Thirteen years of nonsense.

From what I hear, the President Barack Obama is dead set on opposing it. I can't see why, it makes perfect sense and would improve his ratings. Fear of reprisals from Wall St./London? Perhaps. I think Mr. Obama needs to sit by himself for an hour and come up with a pros/cons list like the rest of us do when deciding something important. That's one of the basics taught in school. Back to basics to restore sanity to the financial system. Once the banking sector is cleaned up and brought to heel as the facilitator of lending and thereby business expansion, we can all get on with the business of picking the winning stocks for this second decade of the 21st century - without constantly wondering about the effects of government stimulus.

Bargain Bin Blue Chips
Meanwhile, the following blue chip stocks are trading below half of price-to-book-value.

Near-bargain-bin Blue Chips
As far as the near bargain bin'ners, we have 27: 6 from the Americas, 11 from Asia and 10 from Europe.

Americas
Of the six stocks from the Americas, the two Bermuda reinsurance companies are in my "too hard" pile, the two Canadian oil & gas companies are in the "poor fundamentals" pile, JP Morgan is in the "too hard" pile and Petrobras is in the "fair fundamentals" pile. If Enerplus and Pengrowth fall further in price, say below half of price-to-book, I will consider adding them to my "poor fundamentals-opportunity for gains" pile. They also both have great dividend yields of 7+% each. Buy them for the income, dollar-cost-average down and then sell them at a reasonable valuation when oil prices eventually pick up. I realize oil prices are still a bit high relative to the generally poor overall economic conditions out of all three regions (Europe-worst, Americas-less worse, Asia-good but slowing down).

Asia
Of the eleven stocks out of Asia, Guanshen Railway is the one I salivate for the most. I rank it fair-to-good for fundamentals and because it is in China I feel it has better than average long term growth prospects. In the past 10 years, it has grown steady revenue growth and net profit. Balance sheet is growing every year, with debt-to-equity currently at 15%. Dividends have declined/gone sideways for a decade, room for improvement here guys! As far as a moat, there are plenty of other rail companies in China... will have to check one day to compare fundamentals with the Shanghai listed train companies.

Wacoal is another interesting company, a ladies' intimate apparel designer, manufacturer and marketer out of Japan. It has fair fundamentals with a decent dividend yield of 3%, but it is Japanese so I would rather pass (too slow growth).

POSCO is South Korea's blue chip steel manufacturer. It has growing revenues with declining profit margin and growing assets with growing debt, not the healthiest fundamentals in the world. Not too bad dividend growth, currently yielding 2.72%.

Sims Metal Management is an Australian metal recycler. With fair-to-poor fundamentals evidenced by uneven revenue growth, uneven profits with loss in '09, uneven asset growth with slightly inclining debt (but still good debt/equity of 18%) and a good dividend yield of 5+%, SMS is not on my investment radar. SMS gained 202% from its December '08 low to its July '09 high, not a bad return for a boring old metal recycler.

Europe
Finally we come to Europe, our favorite beaten-down region to go bargain hunting! Of the ten stocks in the list, I own shares of only one: Nokia. Had I been a more seasoned investor I may have caught NOK's recent dramatic 10-day, 67% rise. LOL!!

From an 18-year low of $1.63 on July 18th , NOK ran up 67% to an August 1st high of $2.72. I have a preset buy price at $1.50 so I was waiting with nerves of steel for the stock to dip to my desired lows. It still may and likely will, because times remain challenging for the company in the face of stiff competition and weak economic growth. The ray of hope I saw back in February when I started dollar-cost-averaging my way down however, was the fact that the global smartphone industry is still in its infancy with a long runway ahead of it and with room for growth for all the big players. I may now revise upward my next d-c-a down target of $1.50 although I am skeptical as the tangible book value per share is now 0.82. This could be a good lesson in "cheap enough" that I may have to learn the hard way. On July 13 NOK was at $1.84 with price-to-book of 0.53 and I came close to buying another set of shares. This may be as undervalued as Nokia gets before its long, slow ascent back above $10, assuming it can produce products people want at a production price that stems the years of declining profit margins and losses.

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