Which Foreign Stocks Have The Most Future Earnings Growth Potential?

Posted on March 25, 2011

By Robert Hauver

Investing has become much more of a global pursuit in recent years, with more non-US stocks trading here in the US. ETF’s have also made it easier to gain exposure to international stocks. However, there’s often a disconnect between some ETFs’ performance, and the share performance of foreign stocks listed in the U.S. Some ETF’s afford better exposure to foreign markets than US-traded stocks do, simply because some countries don’t have that many stocks trading here. Russia, for example only has 4 stocks trading in the US, whereas China has 231, and Canada has 170. You can also find US-traded stocks on the Pink Sheets/OTC market, but these stocks can often lack liquidity.

We used a minimum of 4 stocks trading in the US as a cutoff on these tables, so that Russia was included, due to its inclusion in the popular “BRIC” category:

COUNTRIES-ETFS-2011-03-24

**(SEA was the only ETF we could find with at least 20% weighting in Greece. It’s actually a Shipping ETF that includes many of the Greek shipping stocks.) It looks like the European stocks have fared the best year-to-date, with debt-ridden Spain leading the pack, and Italian and German stocks close behind.

However, with the exception of South Korea, Spain, Italy, Hong Kong, and Canada, the ETF’s listed above don’t really correlate that well to most countries’ US-traded shares. To be fair, many ETF’s have different profiles, some of them may concentrate on larger cap stocks, and others may even use derivatives in addition to equities, but most of them purport to give investors exposure to whatever foreign market is in their name. On the other hand, since some of these countries have so few stocks trading here, the share performance of their ADR’s is not truly representative of how that country’s local stock market has performed.

So, which countries’ US-traded stocks have posted the most earnings and sales growth over the past 5 years?:

Countries-Past EPS_2011-03-24

Not surprisingly, BRIC countries Brazil, India and China are near the top for the past 5 years, but Chile, Argentina, Israel and Canada are also in the top group. Canada, of course, is a commodity-rich nation – they’re the biggest oil exporter to the US. Like Canada, Chile is also rich in resources, such as copper, which has quadrupled in price due to demand growth from China and India. Israel has burgeoning tech and biotech/healthcare industries.

What about the future? The following table is based upon analysts’ estimates for future EPS growth for these US-traded foreign stocks:

COUNTRIES-PEG-2011-03-24

These future rankings look quite different from the past. Argentina has fallen to the bottom, and S. Africa, Mexico and some other countries’ stocks are estimated to have very strong growth over the next 12 months. The Next 12 Month PEG ratios for a majority of these stocks look quite undervalued, including US stocks. Notice, however, how the 5-year projected valuations, (PEG-Next 5 Years), aren’t nearly as undervalued, with the exception of Brazil, China, Singapore and Hong Kong.

Are US stocks really going to increase earnings by 33%? If the recovery ramps up, it’s possible, but, keep in mind, of course, that these are very broad, aggregate estimate numbers, based on a diverse array of stocks and countries. Your best bet would be to further research individual firms within the undervalued countries.

When it comes to dividend paying stocks, Israel seems to be in the sweet spot of combining future growth with dividends. Israel has a highly educated workforce, with more engineers and PhDs per capita than any other country. Israel also has more tech startups than any other country. There are currently 2 wireless Telecom stocks from Israel that are listed in the Telecoms section of our High Dividend Stocks by Sector Tables : Cellcom, (CEL), and Partner Communications, (PTNR). Israel also has some dividend stocks, such as these 3 tech firms, Formula Systems, (FORTY), Mind C.T.I. (MNDO), and Ituran Location, (ITRN), which are listed in the Tech section of our high dividend stocks tables.

Next week we’ll be focusing on more individual stocks from undervalued countries.

Disclosure: Author is long shares of PTNR.

Disclaimer: This article is written for informational purposes only.

A Contrarian Trade: An Oversold Uranium Dividend Stock

Posted on March 17, 2011

By Robert Hauver

Uranium stocks have had a meltdown, in the wake of the Japanese nuclear reactor emergency, causing one of the major players to shed over 30% of its market value in March. We’re talking about Cameco, (CCJ), which produces nearly 16% of the world’s uranium, second only to Kazatomprom, a state-owned producer in Kazakhstan.

Cameco’s CEO states, in a video on their website, that Japan will probably only impact the company’s sales by about 3 to 5%, and that this should be offset by greater Japanese consumption during the coming rebuild. He also points out that the impacted reactor is 40 years old, and that the new plants being built around the world have higher safety specs than the older plants. There are 53 reactors currently under construction and, by 2019, 91 new reactors (net) are forecast to come on line.
Most of this new build is being driven by rapidly developing countries like China and India, which have severe energy deficits and want clean sources of electricity to improve their environment and sustain economic growth. (Source: Cameco website)

CCJ operates in 3 areas: Uranium production, Fuel Services, and Electricity generation (via a 31.6% interest in the Bruce Power Limited Partnership (BPLP), which operates four nuclear reactors at the Bruce B generating station in southern Ontario. Here the 2010 Revenue & Gross Profit contributions by segment:

CCJ-REV

Cameco has several advantages over its competitors:

It owns several of the world’s highest-grade uranium deposits. The company’s McArthur River mine in Saskatchewan boasts ore grade concentrations 100 times higher than the industry average.
With demand greatly outstripping mine production, producers like Cameco have a stronger hand to play at the bargaining table and have negotiated more favorable contract terms with utility customers.
Supply-and-demand dynamics increasingly favor uranium producers. As secondary sources dwindle, sustained high prices will be necessary in order to get mine investments to close the gap between consumption and production. (Source: Morningstar)

Cameco plans to double its uranium production to 40lbs/year by 2018, by further developing its ongoing long-term operations in Canada, Kazahkstan, Australia, and the U.S.

INDUSTRY COMPS:

CCJ-ROE

As you can see, the Uranium industry isn’t a big bastion of high dividend paying stocks. CCJ’s mgt. and debt metrics appear to be in line with their industry averages, and their margins are much higher than the industry averages.

The drastic drawdown in price has now made CCJ’s growth valuations much more attractive:

CCJ-PEG

Although Cameco isn’t part of the world of high dividend stocks, it does currently offer high options yields of 15%-plus annualized via selling its put options. We chose to sell out to January 2012, to gain more revenue, get a lower break-even, and give the current dark pessimism some time to subside.

Selling Cash Secured Puts for CCJ also gives you a break-even pretty close to CCJ’s 52-week low:

CCJ-PUT

(We’ve added the above put options trade to our Cash Secured Puts Table this week.)

Selling Covered Calls will give you more upside potential than the above put option trade:

CCJ-CALL

(You can find more details on this and other covered call trades in our Covered Calls Table.)

CCJ’s Relative strength is very low at 15.59, and it’s in the oversold range on its stochastic chart.

Disclosure: Author is short CCJ puts.

Disclaimer: This article is written for informational purposes only.

3 Undervalued Energy Dividend Stocks With High Options Yields

Posted on March 10, 2011

By Robert Hauver

As we mentioned in last week’s article on undervalued Financial stocks, Standard & Poor’s recently published a table with projected 2011 Earnings by Industry Sector:

S&P-SECTOR-EPS-2011

This week, we’ll focus on 3 Energy dividend paying stocks with low PEG ratios, attractive mgt. metrics, and low debt, with options available. Although none of these firms are high dividend stocks, you can still achieve double-digit annualized returns on them, and lower your risk, via selling Covered Calls or Cash Secured Puts.

These 3 dividend stocks are:

CEO-mro-names-2011-03-10

(Company Profiles are listed at the bottom of this article.)

Here are sector comps for these 3 firms:

CEO-MRO-ROE-2011-03-10

All 3 firms look good when compared to broad sector avgs., excepting Profit Margin and and Dividend Payout ratio. Clearly, CEO stands out above the other 2 firms, for mgt. metrics and profitability. This stems from their focus on the more profitable exploration and production end of the energy biz, as opposed MRO and SNP’s much heavier exposure to lower margin refining activities.

Here are Growth/Valuation comps:

CEO-MRO-PEG-2011-03-10

Although all 3 stocks have attractive long-term PEG’s, SNP appears to be more undervalued than the other 2 firms both near-term and long-term.

Here are current Covered Calls:

CEO-MRO-SNP-CALLS-2011-03-10

All three of these Covered Call option trades offer double-digit annualized yields, with call option premiums that are at least 3 times the dividend payouts during the period of the trade. The SNP trade offers the most upside price gain potential, with a total potential yield of over 32% annualized. There are more details on these and other covered call options trades in our Covered Calls Table.

Conversely, selling cash secured put options can give you a lower entry point, and still offer high options yields:

CEO-SNP-MRO-PUTS

You can find more info on these and other Cash Secured Put trades in out Cash Secured Puts Table.

Company Profiles:

Marathon (MRO): Marathon’s exploration activities are focused on adding proﬁtable production to existing core areas (the U.S., Equatorial Guinea, Libya and the North Sea) and developing potential new core areas (Angola, Indonesia, Iraqi Kurdistan Region and Poland). Production operations are currently focused in North America, Africa and Europe. The Company also holds ownership interests in both operated and outside-operated oil sands leases in Canada. Marathon has extensive reﬁning, marketing and transportation operations concentrated primarily in the Midwest, Gulf Coast and Southeast regions of the U.S. Marathon ranks as the ﬁfth largest crude oil reﬁner in the U.S. and the largest in the Midwest.

CNOOC (CEO): China’s largest producer of offshore crude oil and natural gas and one of the largest independent oil and gas exploration and production companies in the world. The Group mainly engages in oil and natural gas exploration, development, production and sales. The Group has four major production areas in offshore China, which are Bohai Bay, Western South China Sea, Eastern South China Sea and East China Sea. In addition, it is one of the largest offshore crude oil producers in Indonesia. The Group also has upstream assets in Nigeria, Australia and some other countries.

Sinopec/China Petroleum & Chemical (SNP): One of the largest integrated energy and chemical companies in China. The scope of its business mainly covers oil and gas exploration and production, extraction, pipeline transmission and marketing; oil refining; production, marketing, storage and transportation of petrochemicals, chemical fibers, chemical fertilizers and other chemical products; import, export and import/export agency business of crude oil, natural gas, refined oil products, petrochemicals, chemicals, and other commodities and technologies; research, development and application of technology and information. The Company is China’s largest producer and supplier of refined oil products (including gasoline, diesel and jet fuel, etc.) and major petrochemical products (including synthetic resin, synthetic fiber monomers and polymers, synthetic fiber, synthetic rubber, chemical fertilizer and petrochemical intermediates). It is also China’s second largest crude oil producer.

Disclosure: No positions

Disclaimer: This article is intended for informational purposes only.

Undervalued Financials: 3 High Dividend Stocks With Low 2011 PEG Ratios

Posted on March 4, 2011

By Robert Hauver

Since the crash, many investors have shunned financial stocks, having been badly burned during the market meltdown. However, Standard & Poor’s recently published a projected 2011 EPS growth by sector table that puts the Financial sector near the top for expected growth in 2011:

S&P-SECTOR-EPS-2011

There are currently some financial dividend paying stocks that are undervalued, when analysed by their 2011 PEG values. In addition, they each offer a hefty dividend yield. This week, we screened for Financial stocks with attractive ROE, high dividend yields, strong profit margins, and low 2011 PEG ratios. We came up with 3 financial dividend stocks, 2 REIT’s and a Diversified Investments firm, which we’ve added to the Financials section of our High Dividend Stocks by Sector Tables:

Resource Capital Corp REIT., (RSO), NY Mortgage Trust REIT, (NYMT), and Main St. Capital, (MAIN):

MAIN-NYMT-ROE-2011-03-4

Although it has the lowest dividend yield, MAIN looks to have the best metrics of these 3 firms, in terms of highest profit margin, and lowest leverage. MAIN also has the lowest dividend payout ratio, (see below). However, RSO and NYMT are estimated to have much higher growth in 2011:

MAIN-NYMT-PEG-2011-03-04

RSO is the only stock in this group that has options available. However, its options yields are much lower than its current dividend yield.

Dividend Schedules/Payout Ratios:

MAIN switched from a quarterly to a monthly dividend in Sept. 2008, and has maintained a $.125/share monthly dividend ever since. Dividend Payout Ratio: 54.29%

NYMT currently pays $.18/share quarterly. Their next ex-dividend date should be approx. March 30, 2011. (Note: They decreased their dividend from $.25 to $.18 in July 2010). Dividend Payout Ratio: 72.64%

RSO currently pays $.25′share quarterly. Their next ex-dividend date should be approx. March 29, 2011. Dividend Payout Ratio: 111.70%

Company Profiles:

(MAIN): Main Street Capital is a principal investment firm that provides long-term debt and equity capital to lower middle market companies. Main Street’s investments are primarily made to support management buyouts, recapitalizations, growth financings and acquisitions of companies that operate in diverse industry sectors and generally have annual revenues ranging from $10 million to $100 million.

(NYMT): New York Mortgage Trust, Inc. is a real estate investment trust (REIT) that acquires and manages primarily real estate-related assets, including mortgage-backed securities (“RMBS”) issued by Fannie Mae or Freddie Mac (each an “Agency”), high credit quality residential adjustable rate mortgage (“ARM”) loans, non-Agency RMBS, and to a lesser extent, certain other real-estate related and financial assets. As a REIT, the Company is not subject to federal income tax, provided that it distributes at least 90% of its REIT income to stockholders.

(RSO): Resource Capital Corp’s investment strategy focuses on commercial real estate-related assets and, to a lesser extent, higher-yielding commercial finance assets. RCC invests in the following asset classes: commercial real estate-related assets such as whole loans, A-notes, B-notes, mezzanine loans and mortgage-related securities and commercial finance assets such as other asset-backed securities, senior secured corporate loans, equipment leases and notes, trust preferred securities, debt tranches of collateralized debt obligations and private equity investments principally issued by financial institutions.

Disclosure: No positions

Disclaimer: This article is written for informational purposes only.