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.

Magna International Inc

Ticker: MGA, Buy below $50.

Why I Would Buy

1.     Cheap – Magna trades at 8x current earnings and an astounding 5x forward earnings!

2.      Investment grade credit rating – Magna’s long term senior debt was already investment grade, it was recently upgraded another notch by Moody’s (from Baa1 to A3).

3.      Upbeat Analyst Consensus–5 star “strong buy” rated by S&P,  9.7  equity consensus score by Reuters’ (at Fidelity) .

4.      Low Debt – Just 25% of the capital structure is comprised of debt.

5.      Low Payout Ratio – Magna pays out less than 20% of its earnings as dividends.

 What Could Go Wrong

1.       Trump and NAFTA – About 60% sales of Magna’s sales is spread across Canada, US and Mexico, enough said!

2.      Highly Cyclical –  The automotive industry is highly cyclical, Magna is probably riding the crest of an industry peak right now ( the company lost money during 2009 recession).

3.      Meagre Returns of Equity – RoE is my favorite metric for picking stocks, Magna has earned anemic single digit returns on this metric.

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

Daimler AG

daimler

Ticker: DDAIY, Buy below $80.

Why I Would Buy

  1. Cheap – Daimler trades at less than 9 times trailing earnings, 1.3 times book and below 0.5 times trailing sales!
  2. Generous R&D Spend – Daimler consistently spends between 4 to 5% of revenues on research and development. In 2015 this amounted to an astounding 6.5 billion Euros.
2011 2012 2013 2014 2015
5.3% 4.9% 4.7% 4.4% 4.4%
  1. Strong Returns on Equity –Daimler  has posted impressive RoE numbers:
2011 2012 2013 2014 2015
14.6% 17.4% 20.1% 16.4% 15.9%
  1. High Investment Grade Credit Ratings – Daimler enjoys strong credit ratings on its long-term debt (S&P: A-, Moody’s: A3, Fitch: A-).   
  2. Low Payout – Despite a dividend greater than 5%, the payout ratio is at about 40%.

What Could Go Wrong

  1. Poor Cash Flow – The company has surprisingly been negative free cash flow for the past 5 years. The poor cash flow generation is exemplified by it’s operating cash flow in 2015: it was a miniscule 222 million Euros earned on revenues of 149+ billion Euros!
  2. High Beta – Despite having a diversified product line (the ubiquitous Freightliner trucks for example are a part of Daimler’s offerings), a majority of profits are derived from its luxury car business. Luxury vehicle sales tend to suffer during economic downturns; for instance during the financial crisis in 2008 Daimler’s profits cratered and in 2009 it reported a loss.

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

Jardine Matheson

Jardines

Ticker: JMHLY, Buy below $60.

Why I Would Buy

  1. Access To High Growth Markets – Jardine Matheson is a conglomerate that operates businesses in South-East Asian markets such as Indonesia, Singapore, Hong Kong etc. Newer investments are in hard-to-access, hyper-growth countries such as Myanmar and Vietnam.
  2. Astute Capital Allocation – Management has displayed strong skills at initiating and expanding ownership in businesses at extremely opportune times. Examples include: scooping up a 50% stake in Indonesia based Astra during the Asian financial crisis, and entering into joint ventures in Myanmar at the first sign of market liberalization there.
  3. Diversified Business Mix – The mix of businesses under the Jardine umbrella are awe-inspiring: real-estate, auto dealerships, hotels, restaurants, palm oil plantations, construction, engineering and more.
  4. Strong Returns on Equity – Jardine Matheson has averaged an impressive 11+% RoE during the past 5 years. Although there are signs of a slow down at Indonesia based Astra, their recent forays into Thailand and Myanmar shows potential for maintaining the high returns.
  5. Fair Price – The Company trades at about 12 times earnings and 1.1 times book.

What Could Go Wrong

  1. Convoluted Shareholding Structure –The conglomerate has a puzzling shareholding structure: Jardine Matheson holds ownership in many of its underlying business via a 83% stake in an intermediate holding company called Jardine Strategic. Jardine Strategic in turn holds a 56% stake in it’s parent Jardine Matheson! Look at the graphic below to see this strange looped shareholding:JardinesComplexHoldings
  2. Dynastic LeadershipThe Company is run by a single family – the Keswicks. The family projects a controlling influence over this conglomerate although it possess only 14% of voting rights. Jardine Matheson does not have professional management, rather the senior-most leadership is dynastic and is derived entirely from the Keswick family.
  3. Currency Risk –JM transacts business in various South-East Asian currencies, these are emerging market currencies and could move in any direction or degree relative to the USD.

Please read disclosure here before taking any action based on this post.