Small Cap Chinese Stocks Oversold/ U.S. Aging Population Plays

Oversold China

For those of you who own these small cap Chinese stocks you have being seeing a lot of red lately.  This can be attributed to recent accounting errors from Chinese public companies, inflation concerns, and a general bearish outlook on China.  Why do I believe that these stocks are being discounted too much?  I honestly believe that investors think that a dollar in China is worth less than a dollar in the U.S.

If you have a tighter investment horizon then I think you can get international exposure through large cap U.S. names, like JNJ and MCD.  However, if you are more risk tolerant or are trying to beat the market I would take a look at some Chinese small cap companies.

Take a look at VIMC, XIN, and CHOP.


Purple Hair Play

The population is aging considerably.  The U.S. census showed an average age of 38 in 2010 compared to 35 in 2000.  That is going to continue to grow.

If  you plan on investing until 2030, look at CVS, JNJ, ABT, and AHS.  Those are my favorites for a long-term play.  Honestly you can't go wrong with JNJ or CVS.  These companies will always have solid top line and bottom line numbers. The older population buys more prescriptions and general health care products and services.

This might be the safest investment I have ever seen.

My Investopedia Portfolio 3/29/2011 FVITF

My current holdings:

• Exelon (EXC) 500 shares at a 3.39% loss
• General Electric (GE) 1000 shares at a 17.23% gain
• Alnylam Pharmaceuticals (ALNY) 500 shares at a 41.56% loss
• People's United Financial (PBCT) 250 shares at a 13.04% loss
• Nvidia (NVDA) 1400 shares at a 71.75% gain
• Caterpillar (CAT) 200 shares at a 72.74% gain
• Union Pacific Corp. (UNP) 200 shares at a 33.89% gain
• Citigroup (C) 1000 shares at a 11.95% gain

I am selling shares in Caterpillar and Nvidia.  I still like CAT long-term, but I want to ring the register on the gain.  I wish I would have sold Nvidia when it was in the $20s, but I feel like its time to sell some of the shares.

I am going to start buying Fortuna Silver Mines (FVITF).  Go to:  www.fortunasilver.com  and check out their 2010 financial performance.  It is incredible.  I've never seen anything like it.  You will be astonished.  FVITF closed March 29th at $5.22 a share.  This investment is riskier and could be considered a gamble, especially if you consider silver prices unreasonably high. 

Japan Earthquake & Tsunami Effect

The earthquake and resulting tsunami were very unfortunate events.  You can donate funds to Japan through various organizations.  $10 from you would go a long way.

The effect on the stocks:

"Irrational Exuberance" is a book written by Professor Robert Shiller.  He is famous for creating various indexes, most importantly the Shiller P/E ratio, which has accurately calculated bottoms and tops of bubbles.  You can check out the Shiller P/E ratio charts by searching on Google.  "Irrational Exuberance" details the effects of news on the stock market.  Almost always the stock market overreacts to news. 

I believe that Japanese stocks, such as Toyota (TM), are rationally being sold off.  However, Exelon (EXC) and General Electric (GE) are being sold off unreasonably.  Exelon generates nuclear energy in the U.S. and has no affiliation with the nuclear reactors in Japan, but since it deals with nuclear energy it is being sold off.  General Electric manufactured the nuclear reactors that are leaking radiation.  There is no way that GE is responsible for the leak. These are the times in the stock market where long-mid-term value investors can cash in.  As the global sell off continues, Exelon and General Electric will continue to fall.  At one point during pre-market trading on March 15th, GE was down 7%.  I am currently trying to find ways to allocate funds towards this downturn in the market, especially toward those that were hit the hardest.

Look for stocks that are unreasonably being sold off.  Don't act impulsively, but read about why some of the stocks are falling.  Make smart decisions.  The prices of these stocks could continue to fall through the week, but eventually these stocks, especially like those of GE and Exelon, will make a run back to their prices before the disaster.

Why I Like the International Shipping Industry (NM)

Since September 2010 Navios Maritime Holdings (NM) has broken even at a 0% return.  Meanwhile, the S&P 500 has an unrealized gain of 20%.  That's quite the underperformance.

Other International Shipping Stock Returns if invested beginning of September 2010:

• Eagle Bulk Shipping (EGLE) -20%
• Genco Shipping and Trading (GNK) -22%
• Excel Maritime Carriers (EXM) -12%
• Dryships (DRYS) 18%

As you can see, the international shipping industry has suffered compared to the S&P 500.

 I think any of these companies would be worth researching, but I especially like Navios Maritime Holdings (NM).  NM has a dividend of $.06 each quarter or a 4.25% yearly dividend yield.  That's a big reason why I like NM long-term.  Even if the international shipping industry continues to not perform you still are receiving a return.  However, this does not give you downside protection.  NM could always remove their dividend or the stock price could always fall more.  If you decide to invest in NM, make sure you are staying current on NM prospects.  Keep in mind that the international shipping industry is ultra competitive, which doesn't give the shipping companies a lot of control on price.

If you buy make 4 purchase installments to protect against price fluctuations AND make sure you remain diversified after your investment.

For the data used in this article:

morningstar.com


finance.yahoo.com

Investopedia is an Excellent Source for your Investing Education

http://www.investopedia.com/university/

I have been using Investopedia for quite a while now and it has yet to disappoint.  The link above is for Investopedia University, or the tutorial section of the website.  I have gone through almost all of the tutorials and they have helped tremendously.  There is everything from some background on technical investing to how to use contrasting options to limit losses.  I suggest taking some notes on the subjects you know little about.

You can find tutorials all over the web on investing, but you need to make sure there is some  "street cred" with the authors.  Investopedia University has plenty of "street cred."

My experience on Mad Money with Jim Cramer

I recently was selected as a caller for the Lightning Round and for a general discussion question on CNBC's Mad Money.

For those of you interested in being on the show, all you have to do is send in a question to madmoney@cnbc.com that focuses on a stock that is currently in the news.

You can also leave a phone message on the number Mad Money gives you.

You can also e-mail Heather Butler of CNBC at Heather.Butler@nbcuni.com your question.  She is one of the e-mail screeners.

The stock I asked about for the Lightning Round was France Telecom, which he LIKED.

The stock I asked for a discussion question was Navios Maritime Holdings, which he LIKED.

Update on NM and STD

Here are the two updates on the two long-term value plays from the post, "Investing Rules #1."

Navios Maritime Holdings (NM)

Navios Maritime Holdings (NM) just reported financial results for the second quarter and six months ended June 30th, 2010.

Here are some highlights: 

- 110.1% increase in Q2 net income to $46.5 million

- 70.4% increase in Q2 EBITDA to $91.0 million

- 109.1% increase in Basic EPS of $0.46 for Q2 2010

These are outstanding numbers!

If you invested in NM when I first mentioned it, you would have gained $4.94-$5.79= $0.85 per share

Or

a 17.2% or more increase if you followed my 4 purchases per holding rule.

I still love the long-term prospects of Navios Maritime Holdings.  BUY after its initial pull-back.

I think NM could go up substantially tomorrow (August 20th) since NM's data was sidelined by Intel's purchase of McAfee.  Also, since NM is a small value company, short term news doesn't always affect its share price intraday.

Banco Santander (STD)

This investment hasn't performed as well as NM, but I still like it in the long-term.  Its current price is $11.95, so you would have lost $0.58 per share.

Hold on to STD if you bought it when I mentioned it.  It is still a long-term value and international play.

Buy more if you have the funds available.

*******Both pay great dividends as well.

Why should you consider buying PG and/or FTE?

Proctor and Gamble (PG)

Stats
P/E:  15.9
P/B:  2.8
Dividend Yield:  3.1%

The recent reported quarter by Proctor & Gamble caused PG's share price to drop from $62 to $59.75 on August 3rd.  The quarterly report wasn't good, but that doesn't mean the long-term outlook of Proctor & Gamble has changed.  In fact, if you listened to the earnings report you would have found that PG spent more on advertising than usual, which is a good thing for a brand based consumer company like PG.  This means that Proctor & Gamble is investing for the long-term.  They aren't trying to make a single quarter look good, which is a trait not held by most.

The company has a lot of exposure internationally, so Proctor & Gamble still could experience some substantial growth even as a Large Value company.  Furthermore, PG is constantly looking for acquisitions to expand its product line. 

Verdict:  PG has a high dividend yield, great growth potential, and a wide selection of products that is constantly being widened.   Buy PG before it gets back up to $62.  Actually, I think PG is a buy until $65.  This is a long-term investment.

For more information visit:  http://finance.yahoo.com/q?s=PG or http://www.pg.com/

France Telecom (FTE)

Stats
P/E:  12.6
P/B:  1.4
Dividend Yield:  7.1%

Look at that yield!  Enough said.  Long-term play until wireless communication ends or population growth declines.  That was a joke.

Do your research at:  http://finance.yahoo.com/q?s=FTE or http://www.orange.com/

Investment Book List

These are the books I have read and would recommend to any investor.

- The Intelligent Investor by Benjamin Graham

- Even Buffett Isn't Perfect by Vahan Janjigian

- The Little Book That Builds Wealth by Pat Dorsey

- Getting Back To Even by Jim Cramer

- Stay Mad for Life by Jim Cramer

- The 21st Century Economy by Randy Charles Epping

My Current Portfolio

My current holdings are in COP, JNJ, GE, NVDA, NAL, C, EXC, QCOM, ALNY, and DAGVX.

Mid-Long-term:  COP, JNJ, GE, EXC, QCOM, and DAGVX
Speculative:  NVDA, NAL, C, and ALNY

TTM:  Trailing Twelve Months
P/E:  Price to Earnings Ratio
P/B:  Price to Book Value Ratio
P/S:  Price to Sales Ratio

MID-LONG TERM INVESTMENTS

COP:  Conoco Phillips was a long-term play when I bought it in 2008, so if you are familiar with recent stock market events you know that I currently have an unrealized loss on my investment.  I like the financials and the company's efforts to change up their core business activities.  Conoco Phillips was even able to raise their dividend after 2008.

Read more at:  http://quote.morningstar.com/stock/s.aspx?t=COP®ion=USA&culture=en-us 

Company site:  http://www.conocophillips.com/EN/Pages/index.aspx

My rating:  BUY (lower than usual multiples, increasing dividend, business activity adjustments)

TTM P/E:  12.7
TTM P/B:  1.2
TTM P/S:  .5
Current Dividend Yield:  3.9%


JNJ:  Johnson & Johnson has not done as bad as COP since I bought it in 2008, but there are a lot of other major drug manufacturers that have just the same or better multiples and financials as JNJ, such as Abbott Laboratories and Novartis.  JNJ has a great dividend and always maintains high ROE, ROA, and ROIC.

Read more at:  http://quote.morningstar.com/stock/s.aspx?pgid=hetopquote&t=JNJ

Company site:  http://www.jnj.com/connect/

My rating:  BUY (if not JNJ, at least Abbott Laboratories or Novartis)

TTM P/E:  12.0
TTM P/B:  3.0
TTM P/S:  2.5
Current Dividend Yield:  3.5%


GE:  General Electric is a diversified company that has been in operation for a very long time.  GE always seems to have a ton of free cash flow for investment activities and dividends and buybacks.  I personally believe that GE will try to build their dividend back up to where it was before the 2008 recession.  On that note, GE increased their next quarterly dividend by 20% from .10 to .12 per share.

Read more at:  http://quote.morningstar.com/stock/s.aspx?t=GE®ion=USA&culture=en-us

Company site:  http://www.ge.com/

My Rating:  BUY (sitting on cash, dividend history that is sure to return, diversified, profitable company for decades, high book value per share)

TTM P/E:  14.9
TTM P/B:  1.4
TTM P/S:  1.0
Current Dividend Yield:  2.6%

EXC, QCOM, and DAGVX will be covered in the next post.

My Investing Rules #2

My second investing rule is to always consider the dividend yield of a stock.  Dividends are a company's way of sharing its profits with shareholders.  Another way to look at it is that the company  is paying the shareholder to hold its shares.

As an example I will use Exelon (EXC) to demonstrate the great return you could receive only from dividends.

Exelon's dividend history can be seen here:  http://financials.morningstar.com/ratios/r.html?t=EXC®ion=USA&culture=en-us

Exelon's dividend has increased from $.88 a share in 2002 to $2.10 a share in 2009.  So, I think you can make the assumption that Exelon will, on average, increase its dividend year over year.

Now, let's look at its current projected yield, which is 4.93% at its current price of $42.59 per share.

4.93% return over one year only from a dividend is great, especially from a great company with a lot of upside like Exelon.

Let's say you buy a $2,000 position in Exelon through 4 separate buys of $500 worth of EXC stock.

Now here are the possible purchases.

12 shares at $43.00 = $516 + $7 commission = $523
12 shares at $42.50 = $510 + $7 commission = $517
12 shares at $41.50 = $498 + $7 commission = $505
12 shares at $44.00 = $528 + $7 commission = $535

So, you end up buying 48 shares of EXC for a total of $2080.

In the following calculations we are going to assume that the price of EXC will not go up or down over the long-term.  This means that the volatile ups and downs of the price will not change too dramatically.

We are going to be very conservative on this calculation by saying that the dividend will not go up from $2.10 per share even though based on EXC's dividend history it will go up year over year.

Here is the calculation:

10 year's of dividend payments will equal $1008.  This is only from the $2.10 per share dividend.

So, after 10 years your investment would increase from $2080 to $3088.  A gain of 48.5% or 4.85% per year.

It is easy to see why dividend paying stocks are so popular in 401k(s), IRAs, and portfolios of low-risk individuals such as those close to retirement.

Here are my favorite long-term dividend plays:  EXC, JNJ, MCD, VFC, AZN, VZ

My Investing Rules #1

1.  Based on Benjamin Graham you should try to invest in stocks that have a P/E of 15 or lower and a P/B of 1.5 or lower.  When you multiply the P/E by the P/B the number must be 22.5 or less.  *This is a very conservative rule that I will break many times, but I will always explain why.

Current Stocks that meet the above criteria based on data from http://www.morningstar.com/:

354 stocks passed the test of a P/E equal to or lower than 15 and a P/B equal to or lower than 1.5.

Of the 354 stocks these are my favorite long-term investments:

Banco Santander (STD)  http://www.santander.com/
- Current Price:  $12.53
- Current Projected Dividend Yield:  4.15%
- An international play that is considered a value stock. All I have been hearing this summer is how the most growth will occur outside of the United States and in the BRIC countries (Brazil, Russia, India, and China) and other emerging markets. 

Navios Maritime Holdings Inc. (NM)  http://www.navios.com/
- Current Price:  $4.94 
- Current Projected Dividend Yield:  4.86%
- This is a very speculative play that only the risk tolerant should make.  So, this is for the younger crowd, or the risk tolerant.  Instead of placing a couple bets on Sunday you should look at NM.
- An international play with a good dividend.  Based in Greece with a port in Uruguay, NM is in the dry-bulk vessel business.  Which means they are involved in international shipping.