Scotia Bank

Ticker: BNS, Buy below $60.

Bank of Nova Scotia is a major Canadian multinational bank.

Why I Would Buy

  1. Cheap – BNS is currently selling for 11x trailing earnings and 10x forward earnings.
  2. Dividend – Pays a 4+% dividend, while maintaining a payout ratio below 50%.
  3. Return on Equity – RoE has been consistently at high teens for the past decade.
  4. High Credit Ratings – Strong investment grade credit ratings on long term debt (A+ by S&P). I like strong long term debt ratings, as it is an indicator of the longevity and sustainability of earnings.
  5. Geographically Diversified – in addition to Canada, the bank has significant revenue streams emanating from Caribbean and Latin American countries.

What Could Go Wrong

  1. Recent Stock Issuance – BNS issued a large amount of stock recently to fund an acquisition, it may or not be accretive.
  2. Trade War – Looming trade war could hurt emerging markets that BNS is exposed to.
  3. Relative Valuation – Not particularly cheap when compared to other large banks e.g. JPM.

WPP PLC

Ticker: WPP, Buy below $90.

WPP is a multinational advertising and public relations company based out of London.

Why I Would Buy

  1. Cheap – WPP is currently selling for < 10x earnings.
  2. Dividend – Pays close to 5%, while maintaining a payout ratio hovering around 40%.
  3. Return on Equity – RoE has been above 10% for past decade, and above 15% for past 3 years.
  4. Beaten Down – Beaten down due to uncertainties surrounding the departure of the founder-CEO, and also due to several major accounts coming up for renewal this year.
  5. Globally Diversifiedhas significant revenue streams emanating from every major and developing economy around the world.

What Could Go Wrong

  1. Account Renewals – Several large global accounts are up for renewal this year, just lost one of these (HSBC). If several others are lost, will hurt revenues grievously.
  2. Debt – Several large recent acquisitions were financed via debt, if revenues taper due to any reason; it could snowball into a major problem.
  3. High Beta – Advertising and media spend are strongly correlated to global economy, and is first spending to be cut in a downturn.

Disclosure: I am long WPP, please read additional disclosures here before taking any action based on this post.

China Mobile

Ticker: CHL, Buy below $55.

Why I Would Buy

  1. Cheap– Just 12 times forward earnings.
  2. High RoE – Return-on-Equity is my favorite metric for evaluating stocks, CHL has maintained RoE in the teens during the past decade.
  3. Dividend – CHL yields over 3%, while the payout ratio hovers around a healthy 40%.
  4. Credit Rating – Very strong credit ratings: S&P A+, Moody’s A1.
  5. Wide Moat – Largest cell phone, internet and telecommunications provider in China. CHL is the dominant player amongst an oligopoly of 3 participants.

What Could Go Wrong

  1. State Intervention – 70% of China Mobile’s shares are owned by the government, and it exercises considerable control over the company’s operations.  Being state controlled, the company’s profit motive can sometimes be subordinated by state’s social goals.

Disclosure: I am long CHL, please read additional disclosures here before taking any action based on this post.

British Land Company

Ticker: BTLCY, Buy below $9.

Why I Would Buy

  1. Cheap– British Pound is hovering near historic lows relative to the US Dollar. This makes now an ideal time to buy British hard assets (such as real-estate) on the cheap using the strong dollar.
  2. High Yield– British Land is a REIT, and yields 5+%.
  3. Discount – Shares trade at about 70% of book value.
  4. Buyback – Management (rightly) perceives shares to be undervalued and has initiated a massive buyback, setting aside 300 million pounds ($393 million) for this.
  5. Sponsored ADR – British Land is listed on the London Stock Exchange, however the company has sponsored an ADR for the benefit of American investors.

What Could Go Wrong

  1. Brexit –The Pound and British real estate are cheap for a reason: the full impact of Brexit on the British economy is unknown. Additionally, financial companies may leave London as a result of Brexit, reducing demand for real estate.

Disclosure: I am long BTLCY, please read additional disclosures here before taking any action based on this post.

Enel Generacion Chile

Ticker: EOCC, Buy below $23.

Why I Would Buy

1.      Strong RoE – Enel Chile has generated double digit annual returns-on-equity during the past decade.

2.      Cheap – Trades at less than 9 times earnings.

3.      Dividend – Pays a 3+% dividend.

4.      Defensive Investment  – Regulated utility that generates and distributes power in large parts of Chile.

5.      Currency Diversification – Earnings are in Chilean pesos, this provides an hedge against the dollar via a relatively stable currency.  

 What Could Go Wrong

1.       Emerging Competition – Solar energy is emerging very strong in Chile with recent reports of surplus energy generation,  this could pressure Enel’s hydro-electric and coal-fired generation.

2.      Credit Ratings –  Credit ratings are on the lower side of investment grade (BBB+ by  Fitch and S&P).

3.      Controlling Interest  – Enel Italy owns 61% of this utility, interests of the parent may not always align with that of minority shareholders.

Disclosure: I am long EOCC, please read additional disclosures here before taking any action based on this post.