Argentine political crisis
I have an interest in South America investments, and staying abreast of politics is a big part of investing there. Argentina has had food deliveries cut off to Buenos Aires during the latest protests against higher export taxes on soybeans. The Argentina political system can be counted on to screw things up every few years. If this part of the world interest you I have found an interesting blog.
KHD Humboldt Wedag International continues strong growth
KHD Humboldt Wedag Int. (KHD: 31.1699 +0.2799 +0.91%) released 2007 year end results today, and their growth appears to have stayed on pace. I will cover this in 3 steps: First the numbers for 2007 and the 4th quarter, next the company’s plans for future growth, then a few personal thoughts. The get things started, here are the numbers:
Revenues for the company grew 44% from 2006 to 2007 to $580.4 million and net earnings were up 49% to $1.68 per share. My math shows 4th quarter earnings (the number was not broken out in the press release) were 39¢ per share, compared to 34¢ for Q4, 2006. Order intake for 2007 was $818 million and the end of year order backlog was $919 million up 38% over 12/31/2006. The company ended the year with $370 million in cash and securities or approximately 1/2 of its current market capitalization.
In 2007 KHD completed the spin off of its real estate holding in the form of an Austrian REIT to focus 100% on their infrastructure business. Over the last few months they have hired a new cement division president and formed a construction division and hired a president for that division. The goal of the new construction division is to be able to build entire plants with their equipment, rather than just selling the equipment for others to build the plants around. Controlling the complete plant construction process should significantly increase the company’s revenues and profit margins.
Today the CEO, Jim Busche, announced the company’s Build, Operate and Own (BOO) initiative for 2008. The purpose of the initiative is to combine the above mentioned cash and new construction division to form strategic partnerships in their markets to form partnerships to build, operate and own cement plants with KHD’s cement processing equipment. From the press release:
KHD, in addition to being a passive minority equity partner, will design, fabricate, erect, commission and operate these cement plants. Investment banks will arrange and assist in structuring and arranging debt financing. We anticipate that we will have the opportunity to generate earnings on the engineering and equipment supply, as well as on plant operations and on the downstream sale of the commodity. KHD believes that the revenue stream from production would be constant and predictable.
My thoughts on the company and stock: First, the stock may take a hit today; the 39¢ for the 4th quarter is well below the 45¢ predicted by the single analyst following the stock. However, the same analyst is forecasting $1.87 for 2008. The company released guidance of $2.05-$2.15, not including any of the new business included above. These number translate into 25% earnings growth for a stock with a 2008 PE of 12. I expect revenues and orders to continue to grow at the 40% rate as the new initiatives and business areas pick up steam.
KHD is a company doing infrastructure business in growth areas of the globe. Their current order backlog is 33% Middle East, 29% emerging Asia/Pacific, 24% Russia and Eastern Europe, 6% Europe and 6% Americas. The company has a huge cash position and plans to put the cash to work. Finally, it has almost zero following by the Wall Street herd. A few years of quiet growth could turn this into a $100 stock. I remain very positive on KHD.
Note: I currently have a long position in KHD.
Clean-Energy ETFs Volatile, but Hold Potential
Informative article from TheStreet.com on current state and potential of clean energy ETFs. The securities discussed are (PBW: 22.99 +0.34 +1.50%), (PBD: 29.29 +0.43 +1.49%) and (GEX: 56.00 +0.40 +0.72%). The article mirrors my position that clean energy stocks have had their share prices driven down from unrealistic valuation levels and that long term, they are good growth prospects.
Of the three ETFs discussed, my pick, PBD has fallen the least so far this year, down 25.3% according to the article. My calculations show the fund down 18.9% today, March 28. As I have discussed here before, I like PBD for its global exposure and balanced portfolio.
One item that caught my eye, the Market Vectors Global Alternative Energy ETF (GEX: 56.00 +0.40 +0.72%) has 23% of its assets in 2 securities: Vestas Wind Systems and First Solar (FSLR: 311.14 +4.36 +1.42%). The total portfolio is only 30 securities and I think being that top heavy reduces some of the risk distribution advantage of an ETF. The PowerShares Global Clean Energy Portfolio (PBD: 29.29 +0.43 +1.49%), on the other hand, has 86 securities with a max weighting of 2.09% (source: NEX fact sheet, 12/31/07).
The article also discusses the pros and cons of holding individual stocks in this sector, but I am definitely a fan of the ETF approach here. PBD is a component of this site’s 20 Stock Portfolio. This is a hypothetical portfolio I use to track stocks I am most interested in. All of my holdings are of Portfolio components, but I do not own all of the components of the Portfolio.
Note: I currently do not have a position in PBD.
3 Latin America stocks with great potential
I was taking a scan through my Watchlist, checking recent news, and several Latin America based companies caught my attention. Here is some information on each:
- Banco Latinoamerica de Exportaciones SA (BLX: 17.68 +0.04 +0.23%), more commonly known as BLADEX. This Panama based financial institution facilitates trade throughout Latin America. The following quote from Carlos Yap, CFO during the most recent earnings conference call sums up the company’s growth prospects:
I would like to highlight the strong financial performance of the bank not only in 2007, but also during the last three years, which have validated our advanced business model and solid business strategy. Operating income increased 83% during 2007. From 2005 through 2007, operating income grew 58% per annum, driving operating ROE from 4.6% in 2005 to almost 12% in 2007. As Jaime mentioned, increasing our ROE remains the focus of our company. This operating earning’s growth was ruined by the steady increase of our commercial portfolio of close to 20% per annum, as seen as a strong demand and the expanded client based mostly in the corporate sector produced better spreads than lending to banks.
- Gafisa S.A. (GFA: 44.17 +1.68 +3.95%) This Brazilian home-builder is growing revenue at 80% per year, “new launches” at 120% per year and has an EBITA margin of 16%. This is in a market with a housing deficit of 8 million homes growing by 2 million per year. The company builds homes for all economic sectors and future growth looks promising. The limiting factor to their growth seems to be a commensurate growth of available mortgage solutions.
- Mercadolibre, Inc. (MELI: 54.70 +0.21 +0.39%) Argentina based on-line auction site is showing exponential growth throughout Latin America. They benefit from the trends of growing Internet access and affluence throughout the region. The stock price has gotten somewhat ahead of revenue and profitability but the stock will be very attractive when the PE (about 110) is lower than the ongoing growth rate (about 80). Growing profitability or a lower stock price (preferably both) will bring this about. The stock raced to $80 a few months ago as the bandwagon filled up. A little more stagnation in the stock price would not surprise me, until stronger earnings start showing.
These are three Latin America stocks that I am keeping an eye on. Any general pullback by Latin America ADRs could make these very attractive investments.
Note: I currently do not have any position in BLX, GFA or MELI
Bank-owned homes are real estate’s new gold rush
Business - Bank-owned homes are real estate’s new gold rush - sacbee.com
This article from the Sacramento Bee definitely caught my eye. The gist of the story is that more 2,000 homes have been bought from banks in the last two months and 60% of the existing home sales in the Sacramento region are homes that have been foreclosed on by banks.
Good deals are available to those who could not afford a home in the region a few years ago and investors are scooping up properties. Sacramento was a blazing market from 2002 until early 2006 with 25% per year price increases and lotteries for the right to purchase new built homes. Many of those purchases were for investment and went to the lender when prices fell and interest rates increased.
I wrote yesterday how lower rates are now making mortgages more affordable and foreclosure rates could slow. This article is one small sign that excess inventory has reached attractive prices and a bottom may be near.
Finally, if you subscribe to the WSJ online an article today that bank owned inventory is still growing nationwide: Foreclosure Rate Outpaces Sales by Lender Is the Sacramento article a leading indicator, as things from California often are? You decide.
What if Mortgage resets are at lower rates?
This is strictly my own story and observation, but I have not seen any argument to this effect in the financial news so I thought I would throw it out. As the Fed cuts interest rates, the rates for those with adjustable rate mortgages may not see their payments go up, or they even my decrease. I will use my mortgage as an example.
I took out an ARM in November 2005 with a 3 year rate of 5.0%. After the 3 year period the rate will reset at a rate approximately 2% over the 1 year LIBOR rate for the next 12 months. With the 1 year LIBOR currently at about 2.5%, if my mortgage reset today my rate would actually fall.
I am hoping the Fed cuts rates a little more and they stay low until at least December, when the rate will reset. Nothing wrong with a lower mortgage payment!
I know there are a lot of mortgages with lower initial rates than mine, but I was getting quotes closer to 6% three years ago, so 3 year ARM mortgages started at those rates should definitely reset lower in the current rate environment. Rates were quite a bit lower in 2002-2004, but the common 3 or 5 year rate locks on those have long run out and those mortgages should be resetting once a year with relief coming for those still making their payments.
My light weight analysis leads me to believe that foreclosure rates should slow on ARMs, as rates are reset lower than the current payment for many mortgage holders.
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