Triple Play for a Volatile Market

08/22/2003 12:00 am EST

Focus:

Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

In his Money Show workshop,Strategies for a Volatile Market trader and growth stock expert Elliott Gue outlined some of his favorite growth stocks. Each is a special situation, with a distinct advantage within its industry. And while the three trade on the New York exchange, each is a non-U.S. company. Here, Gue discusses an India-based generic drug firm, a Chinese energy driller, and a London-based bank.

"T he generic drug makers look quite good. They are positioned to bring down rising health care costs–an area that the government is increasingly supporting. These companies don’t have to incur humongous research and development costs, because the drugs already exist. They take previously-branded drugs that have come off of expiration, and manufacture generic versions cheaply. Our favorite generic drug company is Dr. Reddy’s (RDY NYSE), an India-based firm. The major pharmaceuticals have a lot of patents that are expiring over the next five years. And the drug companies’ losses are the generic drug firms' gains. Because Dr. Reddy's is based In India, the amount of money that they have to pay to doctors to develop these generic drugs is a fraction of what they would pay here in the US. As a result, their costs are among the most competitive in the industry. They made headlines about a year and a half ago by coming out with a generic form of Prozac, the anti-depressant. This has really boosted sales. Their growth over the last few years has been very impressive. In 2002, it was over 60%. The year before it was over 100%. Dr. Reddy’s also has a drug development arm as well, in which they are looking to develop their own new drugs or take existing drugs and change the delivery style.

"I also like a CNOOC (CEO NYSE), a Chinese energy driller that is the only company allowed to drill offshore in China for natural gas and oil. That’s very important, because China is developing very rapidly. In order for a developing economy to grow–especially one that relies on heavy industry such as manufacturing–there is the need for energy. And they need to have at least some of that supply to be coming from within their own country. They do have over 2 billion barrels of oil equivalent reserves. They also pay a dividend yield of nearly 6%, and it’s always nice to get paid while you are waiting for a stock’s story to work out. In addition, they are working with some foreign partners, such as BP and Amoco. When those firms explore or drill in China, CNOOC is involved. As a result, they will have a piece of the action in any oil or natural gas found offshore of China.

"In financials, our favorite bank is HSBC (HBC NYSE). It’s the second largest bank in the world, after Citigroup. It’s a London-based bank, even though its initials stand for Hong Kong Shanghai Banking Corporation. They do have their head office in Great Britain, but they a lot of their revenues come from Hong Kong, which gives them access to the fast-growing Chinese market. They also have a lot of revenues coming from Europe. Recently, they made an acquisition in North America–Household International–the consumer lending company. Overall, however, they have a nice balance of Europe, Asia, and the US. They are not overexposed to any one region. HSBC is also an extremely conservatively run bank. The CEO of this bank does not believe in overpaying for acquisitions. He bought Household International when it was in trouble. He’s had a record of doing this over time. He is also very conservative about his lending practices and he really keeps a tight reign on this bank. They also have a very nice dividend yield."

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