Howard Marks' Low P/E Picks – Bullish on Brazil Oil and Steel Growth

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Jan 13, 2012
Howard Marks is the chairman of Oaktree Capital and since its inception in 1995 Mr. Marks has tried to put his investment thinking into practice. It consists in having close relationships with clients and managing the firm.


Before serving Oak, Marks worked at The TCW Group where he was in charge of investments in distressed debt, high-yield bonds, and convertible securities. Howard Marks also worked at Citicorp Investment Management, where he served as vice president and senior portfolio manager.


He started in finance when he graduated from Wharton School, University of Pennsylvania. He also holds a major in Finance and an MBA in accounting and marketing from the Graduate School of Business of the University of Chicago.


Oaktree has a particular mandate: provide management services focusing on risk control. Oaktree works in less efficient markets and alternative investments. It has vast experience, an enviable track record, broad product range and substantial assets under management.


"Markets are safer when fear balances greed, and when worry about losing money balances worry about missing opportunity. We don't like it when fear rears its head and stocks drop, but certainly that creates a healthier environment in which to be a holder, and one which should offer better buying opportunities,” says Marks.


I looked at Marks' portfolio and found these stocks as the most interesting for a potential price appreciation.


Genco Shipping & Trading Ltd. (GNK, Financial): P/E of 4.6


Marks bought this shipping stock in the second quarter of 2011 at an average price of $8 and kept his position unchanged.



GNK is an international shipping company that transports iron ore, coal, grain and other core commodities. Since its inception, the company has worked hard to become the largest in the shipping industry.

As regards capacity, the 5.7 million deadweight tons of 2010 were clearly exceeded in 2011, when they reached 22 million. The scrappage rate will definitely affect freight rates and the company´s top-line revenues.

In terms of future expectations, Genco is trying to recover itself through reconstruction efforts in Japan. Last but not least, the Australian coal and iron ore infrastructure are again in the right path.


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Vale S.A. ADR (VALE, Financial)
: P/E of 5.4


Marks bought VALE at an average price of $31, much higher than the current price of $23. VALE is one of the best managed and solid iron ore producers in the world, exposed to high-growth emerging markets. It has many risks but if China does not experience a hard landing in 2012, VALE could rally to the low $30s.



Vale is the world's largest iron ore producer and second-largest nickel producer. The company operates ore mines in Brazil while nickel is produced in Canada, Indonesia and New Caledonia.


In terms of Brazil, the operations should generate economic rents. Vale has many opportunities in the country. Its development in Brazil and Canada lowers country risks vis-à -vis competitors, which tend to invest in less-developed nations with no political and economic stability.


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General Motors Co. (GM, Financial): P/E of 6.1


Marks, like Einhorn, got very interested in GM at prices much higher than current ones. Marks thinks that GM is cheap and it is a solid long-term holding. Einhorn thought very similarly and initiated a position in GM in the last quarter.



GM is a very well-known company within the automobile industry. It emerged as a result of the bankruptcy of General Motors Corporation in 2009. GM operates under the following segments: GM North America, GM Europe, GM South America, GM International Operations and GM Financial.


The company is a market leader and earnings should grow given the recovery after a severe drop in sales.

That is not all. GM has launched new models such as Buick's LaCrosse and Regal and the Chevrolet Cruze, which have proved to be successful. Furthermore, GM has pricing power. It can charge higher prices and get a better margin per vehicle.


Its models can directly compete with those manufactured by Japanese and European automakers. Last but not least, GM is opening a door to Brazil and China. It sells nearly 70% of its vehicles outside North America.


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Companhia Siderurgica Nacional ADR (SID, Financial): P/E of 7.2


Marks likes Brazilian commodity producers. While he may think both VALE and SID are cheap, he reduced his position in the last market correction. He prefers VALE to SID in order to get basic materials emerging markets exposure.



SID is the largest flat-rolled steelmaker in Brazil. Its crude steel capacity is 5.6 million metric tons and its rolling capacity is 5.1 million. It serves in the distribution, packaging, automotive, appliance and construction markets.

The company also has partial ownership of a logistics and transportation business and started a cement business in 2009.


SID focuses on high-value added steel and this protects it from import competition. Furthermore, it holds a vertical integration which provides better control over raw-material costs.


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Petroleo Brasileiro SA Petrobras ADR (PBR, Financial): P/E of 7.8


SID, PBR, VALE: Howard Marks is bullish on Brazil and considers these three companies as the best ones to get that exposure.


This Brazilian energy company under the Brazilian government's control is focused on exploration and production for oil and gas in offshore fields.


In 2010, production amounted to 2.6 million barrels a day, while reserves remained at 12.7 billion boe. Petrobras operates 12 refineries in its country of origin.


PBR has a vast experience in the industry, thus it is enabled to exploit newly discovered resources. Most importantly, it heavily relies on Brazil for exploration, production and downstream operations, thus reducing geopolitical risk.


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