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Cornelius Chan Blog

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Weekly Bargain Bin Blue Chips Update Q3 Week 9

220 views  2012-09-01 19:07   Tagsblue  chip  bargain  bin  below  book  value 

Blue Chip Stock = minimum market cap 1B + minimum 10/10 continuous years of dividends.
Market Price = book value + premium for future growth.

The Dow closed at 13,090.84 today, down -0.51% from last week. The DJIA is up +99.95% from its 5-year low of 6,547.05 on March 9, 2009 and down -1.86% from its post '09 high of 13,338.66 on May 1, 2012.

Bargain Bin Blue Chips

Meanwhile, out of 209 stocks in my blue chip watchlist, 7 are trading at or below half of price-to-book value: 1 Chinese railway company, 1 Japanese bank, 2 Japanese tech firms and 3 European banks.

This week, Sharp Corp. jumped 0.1X price-to-book value and out of my bargain bin list. I really had no intention of investing in Sharp at the moment, that goes for Sony as well. I am shying away from the Japanese blue chips even though famous names are now on sale - for the simple reason that Japan is too complex for me to understand. I read all sorts of things like unsustainable national debt level, falling population growth and alarming demographic trends, deflation for the past twenty years etc. I am waiting for a major market pullback before investing in Japan, as even more famous names with even better fundamentals go on sale in a market route.

This week, Guangshen Railway and Mitsubish UFJ Financial both fell below 0.5X price-to-book. Of the two, I would rather invest in a railway than a bank. Even though GSH is Chinese, it is a blue chip stock and has a growing customer base. Whether or not the economy in China slows even more, or there is a war, or there is a worldwide economic depression, the fact remains people will continue to ride the rails. Guangshen is now on my radar as a buy candidate, as soon as I am done examining its fundamentals with a fine toothed comb. Besides all this, the company is now trading for less than what it went for in the depths of the last bear market of 2009. It is not often a company with growing revenue base and no annual (or quarterly) losses trades for such cheap valuations . Assuming the fundamentals are three quarters decent, all the elements I require are there for GSH to be included in my long term investment portfolio: a blue chip stock with a price-to-book ratio of less than 0.5, a PE ratio of less than 10 and a market price of less than its 5-year average.

Near-bargain-bin Blue Chips

Of the 209 stocks in my blue chip watchlist, 27 are trading at or below 0.8 price-to-book value: 4 from the Americas, 12 from Asia and 11 from Europe.




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