Howard Marks Top Dividend Picks: SCCO, VALE, GGB, SID, CHL, SWY, TWC
He also holds a degree in finance and an MBA in accounting and marketing.
Marks has a clear strategy: to control risk, buy cheap stocks and go against the grain.
When it comes to investing, Howard Marks prefers to follow his instinct rather than follow what others believe. And that is how he has gained above-average results.
This distressed debt investor analyzes the current market situation. As he puts it, “Now is a time to be cautious in the market.” He made it clear at the SuperReturn conference: “Given the current climate, investors should pay attention to bonds rather than stocks.”
He thinks the economy may still tremble, while the government withdraws from purchasing securities. This is the well known quantitative easing that reinforced the markets. But this is the second QE2 the U.S. has gone through.
Although there are no signs of a third one, Marks believes that investors should be cautious.
But now, let's turn to some of Marks' stocks and see how his strategy applies.
Southern Copper Corporation: It is involved in significant operations in copper including mining, smelting, and refining and operates in Latin America. Its biggest operations are carried out in Peru, although it is also present in the U.S., India and China.
There are some facts that may have led to Marks buying a position in it. To start with, it has undervalued stock and high returns on equity. Despite the company's strong competitor, Freeport McMoRan (FCX), dividends are three times the latter's. Furthermore, Grupo Mexico holds 80% of the stock; therefore, there is no need to worry about quarterly earnings reports. Long term forecasts can be made. Finally, copper is a commodity and it is unlikely that this material can be found in other parts of the world. As it is a key element for the construction industry, Southern Copper Corporation's situation is highly positive.
Vale (VALE), Gerdau (GGB) and Companhia Siderurgica Nacional (SID): These three companies belong to the basic materials sector in Brazil. What about them has caught Howard Marks' attention? They operate in emerging markets and although earnings have not been so high, they are very promising. Indeed, double-digit yields can be achieved by selling covered calls.
Vale is the Brazilian iron giant. It has been trading in China and has generated large amounts of cash due to the Chinese market's demand. From 2005 to 2009, the business was immensely profitable, booking a yearly average $8.2 billion in EBITDA on $14.9 billion in sales.
Gerdau is the second-largest long steel producer in the world. It operates in the Americas mainly and has a dominant position in the Latin American steel market.
Companhia Siderurgica Nacional is the most profitable steel company and the sixth largest iron ore exporter. Moreover, its low-cost production and captive raw materials turns it into one of the dominant companies in Brazil.
Undoubtedly Marks has made good deals with the three.
China Mobile Limited (CHL): It is an investment holding company in the mobile telecommunications market. It operates in Mainland China. I'm pretty sure why Marks invested in it. It has more than 600 million customers and its total revenues are greater than the combination of its two largest competitors. Moreover, the stocks are cheap, earnings have been growing in the past 5 years achieving 19% and its dividend's average growth has remained at 24% a year over that same time. Its current yield is 3.9%.
Safeway (SWY): The second largest supermarket across the world is also part of Marks' portfolio. I think that what mostly attracted Howard is the fall of 11% in the stock price and a fat dividend yield of 2.80%. Another pro is the company's capacity to repurchase $14.9 million worth of its shares.
Time Warner Cable (TWC): A video, data and voice service provider in the U.S. It also provides a range of residential video services, including on-demand, high-definition (HD), and digital video recorder (DVR). Some of the reasons why Howard Marks bought a position are the following:
1. It yields 3.1% and raised its 2011 dividend payout by 20%.
2. It has gone far beyond the earnings estimates in three of the past four quarters and the 2011 EPS estimate has risen over the last three months.
3. Sales are 13.5 times this year’s projected earnings.
4. Stock price is low (.71) and its five-year projected PEG is less than one.
Aren't they all good picks?