Pacific Rim Profits

12/18/2013 10:00 am EST


Carlton Delfeld

Editor, The La Jolla Letter and Pacific Gains

Carl Delfeld, editor of Capital Gains, looks around the Pacific Rim for value-oriented investment opportunities. Here, he looks at a mining machinery outfit and a financial play on the expansion of the Panama Canal.

Steve Halpern: We're here today with global investing expert, Carl Delfeld, founder of the Pacific Economic Club and editor of Capital Gains, a newsletter focused on global opportunities. How are you doing today, Carl?

Carl Delfeld: Hello Steven, great to be with you.

Steve Halpern: First, could you tell us a little about the Capital Gains newsletter?

Carl Delfeld: Sure, the Capital Gains newsletter is the member investment newsletter for the Pacific Economic Club, which is a group of over 3,000 different investment professionals, spread out all over the world.

A lot of them are in the Pacific Rim, and the goal, of course, is capital gains, so we're looking at the very best ideas at the extremes, either deep value, demonstrating a clear uptrend, or really fast growth, so we're trying to stay out of, what we call, the mushy middle.

Steve Halpern: Can you tell us a little more about the Pacific Economic Club itself?

Carl Delfeld: Sure, sure. Well, Pacific Economic Club grew over the years. I've been in the business all over the world, you know, from London to Tokyo to Southeast Asia and Manila, and over the years, I've collected, you know, a fair amount of good contacts, and so we started to just, kind of, share ideas and information, and that grew into the club.

In addition to the newsletter and investment ideas, we take tours, investment tours to different places. I have one planned for March, for Vietnam in March of next year, and we also have summits and meetings as well, but the newsletter—the Capital Gains newsletter's, sort of, the heart of the club.

Steve Halpern: Well, let's walk through a couple of stock ideas, so the people can understand what it is you recommend, and one of those ideas is Joy Global (JOY), a large-cap company in the mining machinery sector, and you note that the stock has been hurt by overall weakness in the sector, yet you consider the shares to be cheap. Could you expand on that view?

Carl Delfeld: Sure, sure. Joy Global is a company that, sort of, came out of the ashes of the old Allis Chalmers Company in Milwaukee, Wisconsin, which was a powerhouse in its day.

Joy Global is primarily in the mining machinery business, which, you know, is kind of, pretty much, at the bottom of its cycle, which got our attention. The stock is down 40% over the last two years. It's down 18% this year. You know, while the S&P is up 30% or so, so it's definitely trailing.

The valuation is quite attractive. It's trading right at eight times earnings, forward earnings. That's about half what Caterpillar (CAT) is trading at—and, you know, the earnings have not been that great.

But we really see the cycle beginning to turn, and the other thing I like about JOY is that they don't just make money from selling new mining machinery.

A lot of their business is reoccurring revenue from after-market services, maintenance, and so on, so that cushions the blow. Even in 2008 and 2009, they made money, which is pretty impressive. CAT, you know, lost quite a bit of money that year.


The other thing is, the shorts have really been on top of the stock and it's short position is pretty high, and the stock is starting to trend upward, which is really what separates us from other value guys, in that, we don't want to invest in a stock and have dead money.

We want to see a clear uptrend, some sort of movement in price momentum, and that's when we jump—we try to jump on board and get the bounce, kind of, what we call, a value bounce, so the stock is up 12% over the last three months and so we think that trend is going to continue.

The other thing is, they have announced a billion dollar repurchase program, which is always nice, and they've been cutting costs, which, of course, will help when the cycle turns as well, so, you know, in the low 50s—51, 52—we think it's a good buy recommendation.

Steve Halpern: Now you've also been a fan of a company that's from Panama, a banking firm called Banco Latinoamericano de Comercio Exterior SA (BLX), commonly known as Bladex. Could you share your thoughts on that?

Carl Delfeld: Sure, sure, now the other thing I want to mention, you know, to tie this in, is the Pacific Economic Club, when people think Pacific, they think of Asia, but the Pacific Rim is really much broader than that.

People forget about the other side of the Pacific. You know, from Canada all the way down to Chile, and so, we look at all of those markets, including the United States.

I was in Panama about a month ago for four or five days, and I have to tell you, it's an unbelievable boom town.

One of the reasons is, the Panama Canal is doubling its capacity, so it's going to be able to take much bigger ships and its having an impact—a huge impact—not only in Panama, but throughout the whole region.

Now Bladex is a very conservative play on this Panama growth and the expansion of the canal. Their main business is trade finance and I used to be in banking, trade finance is kind of boring. Its steady, but its nice, reoccurring, steady revenue, and Bladex is, you know, at the heart of trade in Panama and in that region.

It also has a nice dividend of 4.5% and a very consistent dividend record and I just think it's a wonderful play. We've recommended it over the last couple of months. It's up 12%-13% from when we got in, but I really think it would be a great holding for somebody looking for new positions for next year.

Steve Halpern: Well, those are fascinating ideas. We really appreciate you taking the time today.

Carl Delfeld: Thank you, Steven.

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