Trading is not a game of exacts. Perfectionists need not apply. Markets are made up of many irration...
A China Tour
04/28/2006 12:00 am EST
Mark Skousen has long been one of my favorite advisors, as he takes a "big picture" approach including stock and sector fundamentals, economics, and global politics to form his overall portfolio strategy. Here are some of his ideas, based on his recent trip to China.
"I just completed a two-week tour of China and had the opportunity to meet and discuss investment issues with business leaders, government officials, research analysts, and portfolio managers. I also gave a speech on free market economics at Shanghai University of Finance and Economics.
"Having surveyed the investment landscape, I'm more convinced than ever that China offers us a number of attractive opportunities, both through selected China-based stocks as well as first-world firms that derive a significant percentage of their sales and earnings from China's red hot growth.
"One particularly attractive stock with a high yield attached is Chunghwa Telecom (CHT NYSE), Taiwan's largest telecom. The company is expanding its long-distance service into China, Japan, and even the US, while gradually increasing cellphone and Internet service in Taiwan. But more importantly, Chunghwa Telecom is a cash cow, with operating cash flow reaching $2.65 billion and virtually no debt.
"In addition, Chunghwa pays a once-a-year dividend that is steadily increasing. Last August, it paid shareholders a $1.48 dividend, or 7.4% at today's price. I expect a higher payout when it declares its next dividend in early July. In sum, Chunghwa Telecom is a great value play. Buy with a protective stop at $17.
"Another example of a company poised to benefit from China’s growth is Korea Electric Power (KEP NYSE). Known as Kepco, the firm generates over 90% of all electrical power in South Korea. Along with its thermal and hydro units, it also has 20 nuclear reactors that provide some 40% of South Korea's electricity. But Kepco’s real future is in China. In the near term alone, Kepco expects to win contracts to build four nuclear reactors in China.
"And the company has an edge: It is majority-owned by the government of South Korea, where China wants to maintain strong ties. And the stock is cheap. Kepco sells at book value and just one times annual sales. In short, Kepco is a fine utility with strong management, a great balance sheet, and excellent prospects at home. No foreign company is better positioned to take advantage of China's massive move to nuclear power.
"If there is one company tied into the China growth machine, it's Nam Tai Electronics (NTE NYSE), maker of a variety of electronic devices used in consumer products such as TVs, radios, mobile phones, fax machines, cameras, video games, calculators, headsets, and CD players. It sells products worldwide, but has a particularly strong market in China. With revenues exceeding $800 million last year, Nam Tai is growing at a 40% annual clip.
"Nam Tai has very little debt (4% of equity), and is selling for only 14 times next year's earnings. With healthy profit margins, and expanding cash flow, Nam Tai is rewarding its shareholders by increasing its quarterly dividend from 33 cents to 38 cents, an enticing dividend yield of 6.7%. Expect another payout in June. Not surprisingly, there is heavy institutional buying. Let's join them by buying Nam Tai Electronics
"Another excellent choice I picked up while in China is the Templeton Dragon Fund (TDF NYSE), managed by the ever-capable Mark Mobius. I recently interviewed Mobius, and he's always finding bargains in Asia. His fund has outperformed all other Asian stock funds in the past ten years. Let's add it to our recommended list. In addition, the Templeton Dragon Fund is selling at a discount from net asset value."
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