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Weekly Bargain Bin Emerging Blue Chips Update Q4 Week 12

438 views  2012-12-23 11:48   TagsWeekly 

Emerging Blue Chip Stock = minimum market cap 100M + minimum 2/10 continuous years of dividends.
Market Price of a Stock = book value + premium for future growth +/- the nonsense of Mr. Market.

My list of 225 emerging blue chip stocks include large, mid and small cap stocks both foreign and domestic.  Of the foreign businesses in the list, I include only those that have an ADR or a listing on the OTC big board.  This list of stocks, as tarnished as they are by the term, remain some of the largest domestic and foreign companies.  Some of them are former blue chips that have either missed annual dividend payment(s) or fallen below 1B market cap.  Lots of them have never qualified as blue chip because they have either 1) never made 10 years of continuous annual dividends or 2) never risen above that threshold of 1B market cap.

I collect this list for two reasons: 1) because it is necessary to know when a company transitions to a blue chip and 2) the list includes many high quality companies whose shares present both short term and long term opportunities. 

At present, I hold shares of only one of them: Arcelor Mittal - the worlds largest steel producer by volume.  MT failed to deliver annual dividend payments from 2001 → 2004, for which I classify them as 'emerging blue chip'.  The company is on track to transition into blue chip status in 2014 provided there are no missed annual dividend payments for the next two years. 

The time to sell this stock is near the peak of the next economic boom, before the bust occurs- which realistically could be another decade-plus in the making.  MT, being a cyclical stock, is a medium-term holding for me (5 - 10 years outlook) because it will be at least that long until the world's economies are up and running again at full capacity.  If it takes longer than that, then I am prepared to hold shares and collect dividends, as well as dollar-cost-average my way into more cheap shares.

As far as valuation, from 2008 until now shares of MT have decreased in price roughly -83%.  I bought shares at $14.98 back in September and hold them confident that when the world's economies rebound, steel will again be in high demand.  It is likely I have bought MT too early, as shares could easily fall to $5 or even to early 2000's levels of sub-$1 per share if there is a major market correction, global economic recession or depression.  This is where dollar-cost-averaging comes in.

On a personal note, I have missed several stock market opportunities in the past year. 

Most notably, I bought shares of blue chip Nokia way too early at $4.96 per share back in April.  I totally missed the $1.69 → $3.99 gain (+136.1%) from July to the current time.  If I had the patience and grit to see shares fall lower before buying, I could have called myself a competent value investor - as it stands now, I have to consider myself still a novice.  However, I consider this "failure" an excellent lesson for myself when it comes to the next time a blue chip stock presents an opportunity.  Also, I consider Nokia to be a good long-term investment, so my purchase price of ~$5 won't look so bad in the future when NOK trades in the $10 - $20+ range.  Plus, I will happily collect regular annual dividends all the while.

I had a different challenge in 2011 with emerging blue chip Olympus Corp., a Japanese tech company in the medical, life science, industrial and imaging businesses.

A crisis opportunity caused by a company scandal in the summer of 2011 sent shares plummeting -80.8% ($35.30 → $6.76) from July to November.  This crisis opportunity first came to my attention in mid-October.  I followed it with "one eye shut" as I was in the middle of a lot of stock market homework at the time and missed focusing in on the bottoming of shares on November 11.  Since I was only following this opportunity half-heartedly, I never bothered going into the company fundamentals to determine the quality of investment.  Therefore I lacked the knowledge of strength of company financials as transposed onto the strength of company business outlook.

The subsequent price rise ($6.76 → $20.11) meant a remarkable post-crisis gain of +197.5%.  It turned out the crisis caused the stock to overshoot whatever fair value is assigned to it.  Crises are always like that no?  Unfortunately, management discontinued annual dividend payment in 2012 as a result of all the nonsense.  Now it will take them at least another ten years to qualify as one of my 'blue chips'.   LOL!

There is a wikipaedia article on the Olympus Corp. scandal of 2011 here

These are the kinds of opportunities present in both the emerging blue chip and blue chip stocks.

Bargain Bin Emerging Blue Chips (stocks trading at half or below price/book value)
Below are my lists of bargain bin and near-bargain bin emerging blue chips. Data for financial ratios are obtained from Yahoo! finance.

Company Price/Book Value
Grupo Casa Saba SAB de CV (GCSAY) 0.39
Petrobras Argentina (PZE) 0.47
Centrais Eletricas Brasileiras (EBR) 0.11
China COSCO Holdings Co. (CICOF) 0.20
FUJIFILM Holdings Corp. (FUJIY) 0.45
Sumitomo Mitsui Financial Group (SMFG) 0.15
Korea Electric Power Corp. (KEP) 0.18
KT Corp. (KT) 0.39
Wienerberger (WBRBY) 0.32
PSA Peugeot Citroen (PEUGY) 0.14
Commerzbank (CRZBY) 0.33
The Bank of Ireland (IRE) 0.43
ArcelorMittal (MT) 0.49
AEGON (AEG) 0.32
ING Groep (ING) 0.50
Mosenergo (AOMOY) 0.14
Gazprom (OGZPY) 0.43
The Royal Bank of Scotland Group (RBS) 0.29

Near-bargain-bin Emerging Blue Chips:  Americas
Company Price/Book Value
Aspen Insurance Holdings (AHL) 0.65
Niko Resources (NKO) 0.67
Petrominerales (PMG) 0.64
Rona Inc. (RON) 0.76
Banco Santander (Brasil) (BSBR) 0.69
Companhia Paranaense de Energia (ELP) 0.69
Fibria Celulose (FBR) 0.78
Gafisa (GFA) 0.77
Suzano Papel e Celulose (SUZBY) 0.68

Near-bargain-bin Emerging Blue Chips:  Asia
Company Price/Book Value
Mahanagar Telephone Nigam (MTE) 0.65
Kansai Electric Power Co. (KAEPY) 0.54
Konica Minolta Holdings (KNCAY) 0.74
Mizuho Financial Group (MFG) 0.67
ORIX Corporation (IX) 0.74
Ricoh Company (RICOY) 0.80
TDK Corp. (TTDKY) 0.78
KB Financial Group (KB) 0.63
Shinhan Financial Group Co. (SHG) 0.73
Woori Finance Holdings Co. (WF) 0.52
AU Optronics Corp. (AUO) 0.76
United Microelectronics Corp. (UMC) 0.72

Near-bargain-bin Emerging Blue Chips
:  Europe
Company Price/Book Value
EVN (EVNVY) 0.79
Danske Bank (DNSKY) 0.71
TORM (TRMD) 0.65
Stora Enso (SEOAY) 0.74
UPM-Kymmene (UPMKY) 0.65
Fiat (FIATY) 0.53
Telecom Italia (TI) 0.58
Ternium (TX) 0.79
Mechel OAO (MTL) 0.67
Iberdrola (IBDRY) 0.77
Lloyds Banking Group (LYG) 0.79

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