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European Trio for Long-Term Value
07/31/2015 10:00 am EST
Contrarian investor Benj Gallander sees long-term value in select European shares; here the editor of Contra the Heard looks at a Greek shipping firm, a French telecom, and an Holland-based global insurer.
Steven Halpern: Our guest today is Benj Gallander, editor of Contra the Heard. How are you doing today, Benj?
Benj Gallander: I’m doing very well, Steven, how about yourself?
Steven Halpern: Very good, thank you for taking the time today. Now you’re a long-term value-oriented investor noted for your contrarian leaning. Could you explain to our listeners a little about your overall investment strategy?
Benj Gallander: Yeah, what we do is we buy into companies that are out of favor. We particularly like it if the sectors are out of favor, so when the companies are beaten down—their stock price—they will pass an initial filter that we look at.
And then what I’m doing is looking at the corporation’s balance sheet, income statements, financial ratios, management, and I’m trying to find companies who will have a minimum of 100% upside, often 200%, 300%, 400%, but that goal is never pie in the sky, it’s always where the companies have traded before.
So, effectively, we’re looking at huge potential gains, and because we’re looking at such large gains, of course, that’s one of the reasons that our hold period is typically longer than people in and out of the market and it works out on average to about three and a half years.
Steven Halpern: Now, we’ve seen a lot of volatility in global markets in recent months, but you suggested that you’re seeing some long-term opportunities develop in European-related stocks. What’s your general outlook for Europe looking on, as you say, longer-term from here?
Benj Gallander: Well, I think there’s a general cycle to things. It’s always difficult to know the time frames, but Europe is certainly not going to go away, countries like Spain, Portugal, Italy, even Greece. These are countries with people who want to own things, want to do well, so it’s a question of when it will happen.
One of the interesting aspects now, of course, is the American dollar is so strong relative to the euro and many other currencies, but remember, it’s not so long ago that people were avoiding the American dollar. It was badly beaten down and I think that’s a good example of the kind of cycle that I’m talking about.
Steven Halpern: Now, one stock in your portfolio is a Greece-based shipping firm, Diana Shipping (DSX). What’s the story here and how much of an impact does the trouble in Greece have on this particular stock?
Benj Gallander: Well, one of the things we love to see, it’s affected, it’s completely beaten down, and we’ve talked over the past number of years about how I bought a lot of American financials and they’ve done very well.
Shipping has been badly beaten down since the recession and we looked across the board and Diana Shipping seemed to be perhaps the one with the best financials, so we took a good careful look at it and we thought there was a potential for a triple from the stock price, but many of these companies, as you alluded to, they are based in Greece and it’s a good question.
Is that a problem? There’s a lot of incentive for those companies to be in Greece. There are certain tax reasons that they’re in Greece and I think that the Greek people understand where their bread is buttered, so to speak, and they know that they want to keep these companies there.
So I don’t perceive there’ll be a radical change in policy relative to the shipping companies, and I think as the sector recovers, Diana should be in the mix.
Steven Halpern: You’re also a fan of a French telecom firm named Orange (ORAN), which trades on the New York Stock Exchange as an ADR. What’s the attraction here?
Benj Gallander: Well, we bought Orange at around $10.40 a little while ago. It used to be called France Telecom and it changed its name. It’s the leader in the French market and we like to buy leaders if we can buy them at a very, very undervalued price, what we feel is undervalued.
They’re also in Poland. They’re in Spain. They’re in Africa, so they’re in many countries.
One of the beauties of this is it pays a lovely dividend, so as we continue to wait for it to go up, we get a return, but we’ve had about a 60% return thus far.
We perceive the company can double it from this point, but again, it traded at a much higher level in the past. It was mid-30s at one point and we’re not surprised as to see it get back there.
Steven Halpern: Finally, I’d like to ask about the global insurance firm Aegon (AEG), which is listed on the New York Stock Exchange but has a lot of North American operations, yet tends to trade like a European stock. Could you explain that scenario?
Benj Gallander: Well, it is based in Holland, so that’s the reason it trades like European stock. They do have a lot of operations overseas, insurance, wealth management, etc., but they also have Transamerica in the United States, and so they’re also in Canada, so they do have operations in a number of different places.
Now, this was kind of a classic contra story. They had a lot of difficulties. The Dutch government had to come in and help them out, but over the past number of years, they’ve returned to profitability again.
They’re also paying a lovely dividend—and we do love those dividends—so we think this one could triple from this point again to where it traded in the past.
For those who are looking for some European exposure along with more on the US side, the North American side, this one could prove to be a lovely pick.
Steven Halpern: Again, our guest is value investing expert, Benj Gallander. Thank you so much for taking the time today.
Benj Gallander: Thank you very much, Steven, always a pleasure.