Companhia Paranaense de Energia
From now on I will refer to this company by it’s NYSE symbol: ELP. I am learning Spanish, but do not have enough of a handle on it to decipher Portuguese. Back to (ELP: 19.86 +0.23 +1.17%): I have wanted to add some emerging market companies to my 20 Stock Portfolio, for both diversity and growth prospects. I have a strong interest in South America, which leads me to Brazil and Chile. Brazil stands out for the tremendous profitability and growth of the companies there. ELP is the sole electric utility for the Brazilian state of Parana. The company has a market cap of either $2.2 billion or $4.6 billion (sources vary). Here are some of the facts and figures I dug out of the obtuse (at least in English) financial reports and some other sources:
- Net earnings have been doubling for the last 4 years. 2007 through the first two quarters shows flat earnings from 2006.
- Earnings can fluctuate wildly quarter to quarter. I attribute this to seasonality and capital spending.
- The company has 30% of the common stock owned by the state of Parana. The state owns almost 70% of outstanding stock if you count preferred shares.
- Gross profit margins are around 40% of revenues.
- Dividends paid have also been doubling each of the last 4 years.
What I see is a very profitable company with a monopoly to provide a necessary service in an economically growing area. Being partially owned by the local government cannot hurt ELP’s continued profitability. I also like the fact that Brazilian corporations are required to pay out a portion of their profits as dividends. I do not know how much they are requred to pay, but the payout definitely will grow if profits do.
The one troubling fact is that 1st have profits are down from 2007. First quarter was up 65% from 2006 and they were way down in the 2nd quarter compared to a very profitable Q2 in 2006. The stock share price took a hit in August when the news can out, but the share price has been rising since then.
I think this $2 or $5 billion stock should become a $10 billion market cap stock and I am adding it to my hypothetical 20 Stock Portfolio.
I currently do not have a position in ELP.
End of Week review - 20 Stock Portfolio
I want to put up a few notes concerning my 20 Stock Portfolio and some of the stocks there in.
First, the portfolio seems stuck at 10 stocks. This is due to a couple of factors: First, my research time has been somewhat limited. Second, I am really looking for what I believe are special stocks for this portfolio. I have looked closely at a couple that did not make the cut: (OPTT: 8.37 -0.11 -1.30%) and (CHC: 1.70 -0.06 -3.41%).
A couple of stocks it the portfolio are doing really, really well and held up the portfolio. These are the types of gainers I am looking for and wish I owned more than one of them. A big round of applause for (GIGM: 10.71 +0.15 +1.42%) and (ANW: 36.06 +0.01 +0.03%).
Now the dogs: (TMA: 0.1825 -0.0175 -8.75%) and (WSTG: 7.40 -0.18 -2.37%) are treading water with one arm and one leg. TMA has an earning release next week and I am looking for positive news on the dividend. I think the selling is related to news not related to the profitability of the business. I posted here a couple of days ago. WSTG is a very small company with very small news. They have an earning release at the end of October. With some growth and continued dividend the stock should do OK. I am giving WSTG a couple of quarters to keep showing earnings growth while collecting the 4.5% dividend. (VSE: 4.21 -0.25 -5.61%) has given up some ground since my positive post on Wednesday. I see falling corn prices and rising oil as positives that may take a while to reach the bottom line, but I am positive on the one and two year prospects.
[[SF:]], (NAT: 35.56 -2.51 -6.59%) and (PWE: 31.82 -1.24 -3.75%) are income stocks that will start paying off soon and the (SLW: 14.30 -0.57 -3.83%) story remains the same and the stock is doing well.
VeraSun Energy back on the gas, errr Ethanol
A week ago many of the major new agencies were calling for the end of the ethanol boom. Here are stories from the Wall Street Journal, CNN Money, and the New York Times. VeraSun’s stock (VSE: 4.21 -0.25 -5.61%), already on a downward slide, slid harder to a low close of $10.01 on Oct 3, 2007. Today the stock closed at $12.12, a nice 20% move in the last week.
I am spending the week with family in southern Minnesota, and have visited with relative in nearby Iowa, and the corn harvest is going very well this year. As a result, corn prices are already falling, even though many of the fields around here (SE Minnesota) have not been harvested yet. When we went 100 miles south and west into Iowa last weekend, more of the crop was already in.
In regards to VSE, earnings for Q3 are due out early in November, and estimates range from 6 to 32 cents, with the mean at $.19. For all of 2008 the spread is $.50 to $1.50. This is a huge spread and positive surprises should be great for the stock. Total earnings for 2007 are projected to come in around $.45, so the company has the opportunity to show some nice growth if they do anywhere above 08’s minimum.
The ethanol industry is reaching a stage where it is ripe for consolidation. Throughout the midwest there are numerous farmer and co-op owned ethanol plants. These relatively small operations should be ready to sell out if ethanol prices remain soft. The original farmer/investors have done very well already and will not want to stay in marginally profitable plants. VeraSun Energy, as one of the largest pure play ethanol companies, has an opportunity to grow their share of the ethanol pie. I have written in the past on my regard for the company’s business plans.
(VSE: 4.21 -0.25 -5.61%) is in my 20 Stock Portfolio. I currently do not own shares in the company. I plan to wait for the 3rd quarter results before making a personal decision on the stock.
Thornburg Mortgage: Loss Revision
Thornburg Mortgage (TMA: 0.1825 -0.0175 -8.75%) has issued a statement to revise its loss on the sale of securities from around $900 million to $1.1 billion on the sale of $22 billion of mortgage securities from the company’s portfolio. The shares of the stock today have skidded by about 10%. I think the revised numbers have little or no effect on the ongoing prospects for TMA and the share price drop is without merit.
Primarily the asset sale was taken to payoff the loans that were used to fund the purchase of these securities. Put another way the assets were sold to pay off a like amount of debt. The fact that the securities were sold at a loss does not affect the ongoing prospects for the company. This is quite different from a company that spends more money than it takes in as revenue and thus books a loss. That company is spending more than it makes. Thornburg sold some assets to pay off debts. The loss on the assets should not affect the future profitability of the company.
Thornburg has reduced its assets and debts by about 1/3. The remaining assets should be adequate to provide a generous ongoing dividend. I expect the dividend to be in the 40 to 50 cent range and increasing from there as profitability improves. I believe any investor who buys at these prices and holds on for the next few quarters will be well rewarded.
This video show someone who thinks the $.68 dividend will continue to be paid.
I am an owner of TMA.
Postive returns of Small Cap Dividend Stocks
| No. of Companies |
% of Companies With Positive Returns |
Average Return |
|
|---|---|---|---|
| Large Cap, Paid Dividend | 157 | 25% | (27%) |
| Large Cap, No Dividend | 73 | 4% | (70%) |
| Small Cap, Paid Dividend | 721 | 64% | 20% |
| Small Cap, No Dividend | 1056 | 24% | (29%) |
*Price data courtesy of Capital IQ. Returns from Aug. 14, 2000, to March 15, 2003.
I have copied the above chart from a Motley Fool article that I found interesting. It tracks a shows how the different disciplines/sectors performed during the last bear market. Of striking note is the out performance of small cap dividend paying stocks.
My personal search for outstanding companies and stocks tends to put me in this camp. I like above market dividends from companies not well followed by Wall Street. Large caps get pummeled in mass when the market turns and none dividend paying stocks have no “floor” to hold them up when the bears blood is up. “Metaphor attack!!!”
The current bear market fear seems to be unfounded, but it is good to own a range of stocks that can out perform in good times and bad.
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