Gazprom stock analysis

  • Gazprom is one of the most undervalued stocks in the world from a cash flow and book value point of view.
  • Many argue the problem is the management. I argue the management is doing exactly as expected.
  • If we look at future capex options, Gazprom might not be a bargain after all.

With a price to earnings ratio of 3, price to book of 0.26, a price to operating cash flow less than 2, $60 billion invested just in the Power of Siberia pipeline on a market capitalization of $48 billion, Gazprom (OGZPY) is extremely undervalued.

However, as value investors, we must look at what will be the future catalysts that might unlock that value. Some say it will be the completion of the Nord Stream 2, Turkstream and Power of Siberia pipelines that will lower capex and leave plenty of cash for higher dividends. On the other hand, one might argue about the profitability of such projects and whether OGZPY will be forced to invest in many new projects no matter the economics. Keep in mind that the yield on the Russian 10 year bond is 8.71%, thus the dividend of 5% is not really a bargain.

In the video I discuss:

0:24 Gazprom’s value

3:25 Gazprom’s management, and

7:39 an appropriate investment strategy for the stock.

Enjoy the video and please consider liking and following if you appreciate the content.

 

Chinese Stocks List – 90 China Stocks with PE, PB and dividend yield plus comment!

Chinese stocks have been severely hit lately which means that there might be investing opportunities.

shanghai stock exchange.PNG

In this article I will share:

  • CHINESE STOCKS LIST – A list of 90 Chinese stocks with a short description, PE ratio and price to book value. I also divide the stocks into several groups that will make it easier for you to find what best fits your portfolio. We’ll also discuss how investing in China is tricky, there are outright frauds, there is a lot of growth, there is a little bit of everything so it is not easy to get exposure in a proper way.
  • WHAT AM I LOOKING FOR IN CHINA AT THE MOMENT when discussing China like key factors to watch, fundamentals and most importantly, the things not obvious to the market.

I am in the process of building my long term model portfolio. I am looking for gems to cover, follow and perhaps add to my Chinese part of the portfolio. I wish to be exposed to China with a 8% to 15% starting exposure that goes wherever it goes during the years. Something that I can manage through time in a portfolio.

Thus, what am I looking for within Chinese stocks is:

  • Companies that will be doing great even 10 years from now and have a good chance of delivering business returns of above 15% on the current price.
  • This means that the current political and economic turmoil is a great opportunity to buy in.

To find that I have to focus on the:

  • Management
  • Sector
  • Potential scale
  • Business moat
  • Margin of safety, value
  • The not obvious things

Comprehensive analysis of the Chinese stock market and China stocks

The only way to find a few stocks in China that offer the best chance of being great companies even in a decade, are trading at a fair price, and show the potential to become great investments and perhaps even portfolio crown jewels, is to check every stock traded, make earnings models on the most promising and compare the risk reward outlooks.

Key factors to watch when analyzing Chinese stocks

The key factors to watch are those that are not obvious when it comes to analyzing Chinese stocks. Cash flows are key, growth , confirmation of trend or business model, especially cash flows that can be distributed to shareholders. Shareholder friendliness is a positive and quality management too. There have been many scams when it comes to Chinese stocks but alongside thorough research, I believe the risk reward is acceptable.

Of course, this always within a balanced portfolio developed over the long term.

How do I go from here?

The key is to study as many companies as possible. Sometimes you find key date for one company when you research another one in the field. Therefore, the only thing to do is to dig deep, read lots of annual reports, create potential risk reward earnings models, make sector analyses and at the end, we might find something to buy, hopefully.

Let me show you how to download the list:

Click on the link to go to my Stock Market Research Platform:

STOCK MARKET RESEARCH PLATFORM

Scroll down there to the curriculum and enlarge it. Under the paragraph discussing China, you can download the list of Chinese stocks. (you can see PREVIEW – on the right side.

Check out the Youtube video for more info and a personal approach to this.

Argentina Has Great Businesses – ADR stock list

  • Great investment returns come from buying things nobody wants to touch with a ten foot pole.
  • Argentina might be such a case.
  • The MSCI Argentina ETF is definitely not the way to get exposure to the Argentinian bargains.

A look at the Argentinian stocks traded on the NYSE shows how there are good businesses there.

Figure 1 Argentinian stocks traded on American exchanges

argentina stocks

Source: Author’s data

Most companies are directly related to the Argentinian economy which has recently been re-categorized as an emerging market. That is the first sign of a possible rebirth. However, Argentina still has lot’s of issues like political risk, currency problems and economic stagnation. But, to reach great investment returns it is better to buy when there is blood on the streets. I think that there is still plenty of blood on the streets to offer positive asymmetric risk reward investing opportunities.

Nevertheless, investing in Argentina is not an easy straightforward process. A look at the holdings of the iShares MSCI Argentina ETF (AGT) shows how Mercadolibre (MELI) makes 24% of the index while Tenaris (TS) 17%. The two companies, the first a LATAM growth promise story and the second a global steel pipe maker, are certainly not the way to Invest in Argentina. An investor can get much better exposure by carefully selecting specific stocks with lower valuations, better book values and revenues actually coming from Argentina.

Enjoy the video where we give a quick overview on 10 stocks that might give you some research and investing ideas.

Time to Buy Brazilian Stocks?

  • A 30% market decline tells me there is perhaps an opportunity.
  • The key is to find long term fundamental values, good businesses and wait for better times that eventually come.
  • However, a proper investment strategy must be implemented as nobody can know where the bottom will be.

Video here, article below!

I’ve been looking at my screens and, apart from solar stocks, another sector deep in the red has been Brazil. I made such nice returns in 2016 and 2017 from Brazilian stocks that when I see all that red, I start to smile again as opportunity knocks. I hope to share with you the strategy that produced the returns I had enjoyed. One example:

Figure 1 My articles on SA on CEMIG – “Be greedy when others are fearful.”figure 8 example

Source: SA

It is time to take another look at what is going on in Brazil, what the investment opportunities are and what the best investment strategy to minimize risk and maximize returns is.

Brazilian stocks – general overview

Following the FED’s interest rate hikes, the first cracks started showing up in emerging markets. Countries and companies that are burdened with U.S. denominated debt, but book revenues in their weakening domestic currencies, are squeezed by the two headwinds.

Further, crucial to emerging markets is sentiment. Volatile sentiment creates extremes, presenting opportunities for contrarians. More about that later.

Take a look at how volatile the Brazilian ETF has been. It was a 15-bagger from 2002 to 2008, only to drop 70% in the final year of that bull run. There was another bull run in 2009, followed by a long decline that ended in January, 2016. Since then the Brazilian stock market boomed again, only to drop 30% over the last six months.

Figure 2 Brazil ETF (EWZ) historical chartfigure 1 brazil

Source: iShares

I don’t know where the bottom of the current decline will be. The only option we have is to look at the fundamentals of possible investments and their relation to what is going on in Brazil. This leads to finding out their risk versus reward and intrinsic values. The goal is to find a good business that we can feel confident about averaging into if necessary.

Brazil – economic overview

There are two ways to look at an economy. One is to follow the headlines that are spreading panic or enthusiasm, depending on what appears to sell and lead to clicks. The other is to take a deep dive into  key indicators and long-term trends. Let’s start by discussing the news.

Brazil – short term view

The Brazilian general elections are coming this October and the Central bank has been having issues trying to keep the Real stable.

Figure 3 BRL to USD 5-year chartfigure 2 brl usd 5 year

Source: Bloomberg

Versus the dollar, the Brazilian currency depreciated 50% from mid-2014 to January 2016, then stabilized for about two years. As it became clear that interest rates would continue to rise, the Real has lost ground again during 2018. Currency volatility has a significant impact on our investment returns and has to be watched carefully.

The Brazilian currency has been weakening due to the current emerging market sell-off that usually creates a selling spiral because nobody can see a bottom; thus the trend is self-reinforcing. Further, the weaker currency leads to lower economic expectations that, in combination with shallow financial markets, creates an extremely volatile environment. And, as we know, markets do not like volatility and uncertainty.

The Brazilian Central Bank is protecting the currency with foreign exchange swaps and has offered $26 billion in the previous week. As always, investors wonder how long the Central Bank will be able to do that.

The above, in combination with a truckers’ strike that brought to a weekly transportation stop in the whole country during May 2018, has led many economists to cut their growth expectation for the remainder of the year.

Figure 4 Growth expectations for the Brazilian economyfigure 3 economoy

Source: Bloomberg

Regarding the elections, markets hate, which is exactly what we have. The leader in the polls is the jailed former president, Lula.  Without him, the highest number of votes would go to a right-wing candidate. Regardless, there is no clear outcome.

Figure 5 Brazilian election polls without Lulafigure 4 bolsonaro

Source: BNP Paribas

Because nobody knows what will happen, I like to make my investment analyses as if the worse will happen. This means that economic growth stagnates (perhaps to the point of recession), the currency loses another 25% of its value and then next political leader is from a business-unfriendly party. If I find a stock that would still deliver a nice business return, perhaps even a dividend, in such an environment, then I have a strong buy. Before digging into stock analyses, let’s evaluate the long term economic perspective.

Long term economic view on Brazil

It is very easy to lose sight of what is important when there is so much news about things that don’t matter.  The important thing is that life in emerging markets goes on no matter what, gets better year by year and people continue to live as always (except for Venezuela). Plus, people in emerging markets are much more used to volatility than people in developed economies.  Let me show you a few charts.

Despite the Brazilian stock market still being 65% below its 2008 peak, things have improved there during the last 10 years. For example, households’ internet access went from 23% to 70% and is still increasing.

Figure 6 internet access in Brazilfigure 5 internet access

Source: BNP Paribas

An indicator I like even more is energy consumption. It shows how the real economy is developing independent of the temporary economic swings and market sentiment.

Figure 7 Electricity consumption in Brazilfigure 6 electricity consumption

Source: CEIC

Let’s evaluate investing opportunities while keeping in mind the volatility and possibility of extreme negative sentiment that can hit such markets.

Investment opportunities

The Brazil ETF (EWZ) already has better than average fundamentals, but it is important evaluate its holdings.

Figure 8 Brazil ETF fundamentalsfigure 7 Brazil etf

Source: iShares

The stocks are dividend into those directly traded on the NYSE or NASDAQ and on OTCPK.

Figure 9 Brazilian stocks traded directly on American Exchanges

PE PB Comment
1 AMBEV S.A ABEV NYSE Beverages 34.32 5.99 GOOD COMPANY – EXPENSIVE COMPANY
2 Azul AZUL NYSE Airlines 46.95 2.48 BRAZILIAN AIRLINE TO CHECK
3 Banco Bradesco BBD NYSE Banks 9.82 1.49 A look at banks in general necessary
4 Banco Santander Brasil BSBR NYSE Banks 26.44 2.44 A look at banks in general necessary
5 BrasilAgro LND NYSE Real Estate Inv&Serv 5.89 1 Small cap to watch on volatility and value
6 Braskem BAK NYSE Chemicals 10.19 4.91 Potential deal with Lyondell
7 BRF S.A. BRFS NYSE Food Producers 1.46 Operation weak flesh –  nasty meat scandal! – nevertheless check
8 Centrais Eletricas Brasileiras EBR NYSE Electricity 0.4 Suspended privatization process – look into!
9 Comp. Paranaense de Energia-COPEL ELP NYSE Electricity 5.3 0.38 Cheap again – make long term earnings model.
10 Companhia Brasileira de Distribuica CBD NYSE Food &Drug Retailers 29.76 1.93 COMPARE ALL UTILITIES AGAIN WITH EARNINGS MODELS
11 Companhia Energetica de Minas Gerais-CEMIG CIG NYSE Electricity 6.38 0.56 COMPARE ALL UTILITIES AGAIN WITH EARNINGS MODELS
12 Companhia Siderurgica Nacional-CSN SID NYSE Indust.Metals&Mining 6.61 1.53 Volatile steel – take a look
13 Cosan Limited CZZ NYSE bioethanol, sugar and energy 10.17 1.16 sugar – complex stock – check
14 CPFL Energia CPL NYSE Electricity 13.81 2 COMPARE ALL UTILITIES AGAIN WITH EARNINGS MODELS
15 Embraer ERJ NYSE Aerospace & Defense 27.33 1.17 Check the long term outlook and new planes
16 Estre Ambiental ESTR NASDAQ Waste Management 55.41 81.49 Fresh IPO check – severely down
17 Fibria Celulose FBR NYSE Forestry & Paper 25.07 2.62 Loved it below $10
18 Gafisa GFA NYSE HouseGoods&HomeConst 0.59 economy related, look
19 Gerdau GGB NYSE Indust.Metals&Mining 23.2 1 steel
20 Gol Linhas GOL NYSE Travel & Leisure look when comparing airlines
21 Itau Unibanco ITUB NYSE Banks 10.14 1.99 Itau Unibanco
22 Nexa Resources NEXA NYSE Mining 15.38 0.77 check it out from a mining perspectinve
23 Netshoes NETS NYSE Shoes 0.76 Fresh IPO check – severely down
24 Oi OIBR NYSE Fixed Line Telecom. 0.08 0.09 probably wrong data on platforms
25 Petroleo Brasileiro-Petrobras PBR NYSE Oil & Gas Producers 21.79 0.74 oil is not my thing – plus corruption 🙂
26 SABESP SBS NYSE Gas,H20&Multiutility 6.47 0.87 utility check
27 Telefonica Brasil VIV NYSE Fixed Line Telecom. 16.556 1.11 not really a telecom lover
28 TIM Participacoes TSU NYSE Mobile Telecom. 22.88 1.68 not really a telecom lover
29 Ultrapar UGP NYSE Gas,H20&Multiutility 20.33 2.84 utility check
30 Vale VALE NYSE Indust.Metals&Mining 14.73 1.73 not related to Brazil

Source: Compiled by author from various web sources

Check the cost of owning an OTCPK traded listing. I will also look at those for better specific sector analyses within Brazil.

Figure 10 Brazilian OTCPK investing opportunities

1 Advanced Digital Health Medicina Preventiva S.A. ADHMY HealthCareEquip.&Ser
2 AES Tiete Energia AESTY Electricity
3 Banco do Brasil BDORY Banks
4 BB Seguridade BBSEY Financial Services
5 Bombril-Cirio BMBPY HouseGoods&HomeConst
6 BR Malls Participacoes BRMSY Real Estate Inv&Serv
7 Cielo CIOXY Financial Services
8 Comp. Energetica de Sao Paulo-CESP CSQSY Electricity
9 Comp. Paranaense de Energia-COPEL ELPVY Electricity
10 CR2 Empreendimentos Imobiliarios CREIY Real Estate Inv&Serv
11 Cyrela Brazil Realty CYRBY Real Estate Inv&Serv
12 Cyrela Commercial Properties CYRLY Real Estate Inv&Serv
13 Dommo Energia DMMOY Oil & Gas Producers
14 Duke Energy DEIWY Electricity
15 Duke Energy – Pref DEIPY Electricity
16 ENEVA ENEVY Electricity
17 Engie Brasil Energia S.A. EGIEY Electricity
18 Equatorial Energia EQUEY Electron.&ElectricEq
19 Estacio Participacoes ECPCY Support Services
20 Hypera HYPMY Food Producers
21 Iochpe-Maxion Com IOCJY Automobiles & Parts
22 JBS JBSAY Food Producers
23 JSL JSLGY IndustrialTransport.
24 Klabin KLBAY General Industrials
25 Kroton Educacional S.A. KROTY Support Services
26 Light LGSXY Electricity
27 Localiza Rent A Car LZRFY Support Services
28 Lojas Renner LRENY General Retailers
29 Lupatech LUPAQ Industrial Engineer.
30 Marfrig Global Foods MRRTY Food Producers
31 Mills Estruturas e Servicos MILTY Construct.&Materials
32 Minerva MRVSY Food Producers
33 MMX Mineracao e Metalicos MMXMY Indust.Metals&Mining
34 MRV Engenharia MRVNY Real Estate Inv&Serv
35 OdontoPrev ODPVY HealthCareEquip.&Ser
36 OLEO E GAS PARTICIPACOES OGXPY Oil & Gas Producers
37 OSX Brasil OSXRY Oil & Gas Producers
38 Paulista CTPTY Electricity
39 PDG Realty PDGRY Real Estate Inv&Serv
40 Prumo Logistica PRMLY IndustrialTransport.
41 Qualicorp QULRY Nonlife Insurance
42 Raia Drogasil RADLY Pharma. & Biotech.
43 SLC Agricola SLCJY Support Services
44 Suzano Papel e Celulose SUZBY Forestry & Paper
45 Usiminas USNZY Indust.Metals&Mining
46 Usiminas USDMY Indust.Metals&Mining
47 Valid Solucoes e Servicos de Segura VSSPY Support Services
48 Via Varejo GBXPY General Retailers
49 Weg WEGZY Electron.&ElectricEq

Source: Compiled by author from various web sources

Both tables are downloadable on my Research Platform.

My next step is to readjust all my earnings models for the stocks I have covered in the past and to analyze the other stocks from a risk-reward perspective. There are 79 stocks to evaluate.   If we find one, I’m happy; two would be a miracle.

Investment strategy

The investment strategy that has worked in the past was to find companies that will continue to grow business no matter what, find their average future earnings, and invest when the business return appears satisfying.  Find investments where you can continue to invest if the stock drops to average down.

You can find the detailed analyses on my selected stock picks on my Research Platform.