The Chinese economy is growing at a rate of about 2 times to 3 times the rate of developed market economies. Consequently, the chances of making a buck on investments might reasonably be assumed to be better on investments in Chinese based companies than those of developed markets assuming the valuations of those companies are not unreasonable.
There are three principal methods that a US citizen can use to invest in Chinese companies. 1. U S listed Chinese companies 2. open end mutual funds 3. exchange traded mutual funds. There are quite a few Chinese companies listed on US stock exchanges. Among the larger Chinese Companies are the following which can be bought on US exchanges.
Aluminum Corp of China ACH aluminum mfg. 3.4 billion cap
Bank of China BACHY bank about 100 billion cap
China Life Ins. LFC life insurance 116 billion cap
China Petroleum and Chem. SNP oil and chemicals 72 billion cap
CNOOC CEO oil 52 billion cap
China Mobile CHL cell phone 190 billion cap
China Telecom CHA 31 billion cap
There are quite a few other Chinese companies listed on US exchanges. These are just a few.
There are about 8 exchange traded index funds available.
iShares FTSE/Xinhua China 25 index fund FXI 5.5 billion cap
PowerShares Golden Dragon Halter USX China Portfolio PGJ 232 million cap
SPDR S&P China etf GXC 180 million cap
The others are specialized and very small cap.
Among closed end Chinese funds which are traded as etfs are the following:
Greater China Fund GCH 202 million cap 10 year return 14%
China Fund CHN 400 million cap 10 year return 17%
JF China Region Fund JFC 60 million cap 10 year return 9%
Morgan Stanley China A Shares Fund CAF 270 million cap (this fund invests in A share securities that are not available to foreign investors generally) It has been in existance only 2 years.
Templeton Dragon Fund TDF 711 million cap 10 year return 15%
Among open ended funds:
Fidelity China Region Fund FHKCX no load 10 year return 8%
Guinness Atkinson Chin & Hong Kong ICHKX no load 10 year return 9%
Matthews China MCHFX no load 10 year return 14%
AIM China Class A load 3 year return 16% has not been in existence 10 years.
Saturday, July 18, 2009
Wednesday, July 8, 2009
Master Limited Partnerships
Master Limited Partnerships (MLP) are companies that pay out all of their earnings in dividends. With this corporate structure they avoid paying taxes. In that respect they are somewhat similar to real estate investment trusts (REIT) which also pay out all of their earnings in dividends. Because of this the dividends under current tax law are taxed not at the reduced dividend tax rate but at the full tax rate. That is a very important consideration to keep in mind for both for for MLP and REIT. One of the consequences of this is that investments both in MLP and REIT are more suitable currently for tax deferred accounts rather than for taxable accounts. They are more suitable in both a traditional IRA and a Roth IRA as are also taxable bonds.
Most but not all MLP are pipeline companies. There are also a few propane companies, coal companies, and marine transport companies. In certain instances one can buy shares in either the Limited Partnership or the General Partner. The Limited Partnership pays in many cases an incentive to the general partner that increases with increased distributions reaching about 50% of the distribution amount at a certain point. In other words there generally becomes a point where the general partner takes home half the distributions.
Since limited partnerships pay out all of their income one thing to take note is that in order to build capital projects they rely on borrowed money. Consequently, many have very high debt to equity ratios. In other words some are very highly leveraged.
There are somewhere in the neighborhood of about 80 publicly traded MLP and their general partners which also qualify as limited partnerships themselves.
Since this blog format does not allow publishing data in columnar format, I am limited in that data that I can publish in an understandable manner. I will describe two of the MLP so the reader can become familiar with these investments.
The largest two MLP are Enterprise Product Partners LP ticker EPD with a market cap of about $11 billion and Kinder Morgan Energy Partners LP ticker KMP with a market cap of about $10 billion. In other words most are mid cap companies and some are small cap companies. The median market cap of the pipeline segment is a little less than $3 billion so indeed the average MLP is a small cap company.
EPD operates over 30,000 miles of natural gas, oil, and petrochemical pipelines. In additon they have natural gas processing plants and natural gas storage facilities. They have $18.4 billion in assets and $9.3 billion in debt or about 52% of capitalization. Their revenue is about $20 billion. The current dividend is $2.15 pershare or about 8.6% based on the current stock price of $24.85. The current PE ratio is about 14.2. During the past 10 years the company has increased the dividend annually at a rate of about 8%. EPS however have not increased at so steady a rate although over that period they did increase at about 9% annually. To be noted is that EPD has grown significantly due to acquistions. Their most significant being a $6 billion merger with GulfTerra in 2004. The company has a DRIP plan with a 5% stock discount which is also available through broker held shares.
KMP operates about 24,000 miles of natural gas pipelines also natural gas processing plants and storage facilities. They have $17.5 billion in assets and $10+ billion in debt or about 57% of capitalization. Their revenue is about $10.8 billion. The current dividend is $4.20 or about 8.3% based on the current stock price of $50.75. The current PE ratio is about 31. During the past 10 years the company has increased the dividend annually at a rate of about 12.4% but recently the dividend increase has been at a more modest rate of 8%. EPS has not had so great an increase over that time increasing only 4% annually. Cash flow has however increased more significantly growing at 14% annually.
Other notable pipeline MLP and general partners are BWP, BGH, CPNO, ETE, EPE, EPD, MGG, MMP, NS, OKS, PAA, SXL, TPP and WPZ. Among coal are ARLP, NRP, PVR. Among marine transport are CPLP, NMM, OSP, KSP, TOO, TGP. Among propane are APU, FGP, NRGY, SPH.
If you should choose to invest in a MLP, check carefully their debt load and their track record.
Most but not all MLP are pipeline companies. There are also a few propane companies, coal companies, and marine transport companies. In certain instances one can buy shares in either the Limited Partnership or the General Partner. The Limited Partnership pays in many cases an incentive to the general partner that increases with increased distributions reaching about 50% of the distribution amount at a certain point. In other words there generally becomes a point where the general partner takes home half the distributions.
Since limited partnerships pay out all of their income one thing to take note is that in order to build capital projects they rely on borrowed money. Consequently, many have very high debt to equity ratios. In other words some are very highly leveraged.
There are somewhere in the neighborhood of about 80 publicly traded MLP and their general partners which also qualify as limited partnerships themselves.
Since this blog format does not allow publishing data in columnar format, I am limited in that data that I can publish in an understandable manner. I will describe two of the MLP so the reader can become familiar with these investments.
The largest two MLP are Enterprise Product Partners LP ticker EPD with a market cap of about $11 billion and Kinder Morgan Energy Partners LP ticker KMP with a market cap of about $10 billion. In other words most are mid cap companies and some are small cap companies. The median market cap of the pipeline segment is a little less than $3 billion so indeed the average MLP is a small cap company.
EPD operates over 30,000 miles of natural gas, oil, and petrochemical pipelines. In additon they have natural gas processing plants and natural gas storage facilities. They have $18.4 billion in assets and $9.3 billion in debt or about 52% of capitalization. Their revenue is about $20 billion. The current dividend is $2.15 pershare or about 8.6% based on the current stock price of $24.85. The current PE ratio is about 14.2. During the past 10 years the company has increased the dividend annually at a rate of about 8%. EPS however have not increased at so steady a rate although over that period they did increase at about 9% annually. To be noted is that EPD has grown significantly due to acquistions. Their most significant being a $6 billion merger with GulfTerra in 2004. The company has a DRIP plan with a 5% stock discount which is also available through broker held shares.
KMP operates about 24,000 miles of natural gas pipelines also natural gas processing plants and storage facilities. They have $17.5 billion in assets and $10+ billion in debt or about 57% of capitalization. Their revenue is about $10.8 billion. The current dividend is $4.20 or about 8.3% based on the current stock price of $50.75. The current PE ratio is about 31. During the past 10 years the company has increased the dividend annually at a rate of about 12.4% but recently the dividend increase has been at a more modest rate of 8%. EPS has not had so great an increase over that time increasing only 4% annually. Cash flow has however increased more significantly growing at 14% annually.
Other notable pipeline MLP and general partners are BWP, BGH, CPNO, ETE, EPE, EPD, MGG, MMP, NS, OKS, PAA, SXL, TPP and WPZ. Among coal are ARLP, NRP, PVR. Among marine transport are CPLP, NMM, OSP, KSP, TOO, TGP. Among propane are APU, FGP, NRGY, SPH.
If you should choose to invest in a MLP, check carefully their debt load and their track record.
Sunday, March 1, 2009
Oil Company Valuation
One method available to value oil company stocks is according to their proved reserves. One thing to keep in mind though when doing so is that those proved reserves are an estimate. What I thought would be interesting is to see what the value of the proved reserves are for a few oil companies. What I have done is to take their stated proved reserves as BOE equivalents and determined what they are currently being sold for based on the market price of the stock as of Feb 27, 2009.
So here we go.
Anadarko APC $7.17/barrel
Apache Oil APA $8.04/barrel
Chesapeake CKH $4.41/barrel
Chevron CVX $15.65/barrel
Conoco COP $8.40/barrel
Devon DVN $7.99/barrel
EOG EOG $8.63/barrel
Exxon Mobil XOM $26.40/barrel
Hess HES $12.40/barrel
Marathon MRO $13.81/barrel
Noble Energy NBL $9.11/barrel
Occidental OXY $14.66/barrel
Talisman TLM $5.71/barrel
XTO Energy XTO $7.94/barrel
Of course there is more to evaluating an oil company than the cost of their reserves. There is also the cost of delivering that oil to market. I have not addressed that cost here. There are some interesting things to note here. A couple of the integrated oil companies are considerably more expensive per barrel of reserves than are the production companies. Of course they have a much larger invested capital than the production companies. But one must wonder whether they are perhaps over valued currently. The other thing of note is that the cost per barrel currently is between $8.00 and $9.00 a barrel for the majority with two notable exceptions--TLM and CHK. TLM is a Canadian company which has recently become subject to increased taxation. CHK has had some interesting problems including a CEO who unwisely leveraged his company stock and got it yanked out from under him by margin calls. Perhaps that is not the only unwise move he has made.
So here we go.
Anadarko APC $7.17/barrel
Apache Oil APA $8.04/barrel
Chesapeake CKH $4.41/barrel
Chevron CVX $15.65/barrel
Conoco COP $8.40/barrel
Devon DVN $7.99/barrel
EOG EOG $8.63/barrel
Exxon Mobil XOM $26.40/barrel
Hess HES $12.40/barrel
Marathon MRO $13.81/barrel
Noble Energy NBL $9.11/barrel
Occidental OXY $14.66/barrel
Talisman TLM $5.71/barrel
XTO Energy XTO $7.94/barrel
Of course there is more to evaluating an oil company than the cost of their reserves. There is also the cost of delivering that oil to market. I have not addressed that cost here. There are some interesting things to note here. A couple of the integrated oil companies are considerably more expensive per barrel of reserves than are the production companies. Of course they have a much larger invested capital than the production companies. But one must wonder whether they are perhaps over valued currently. The other thing of note is that the cost per barrel currently is between $8.00 and $9.00 a barrel for the majority with two notable exceptions--TLM and CHK. TLM is a Canadian company which has recently become subject to increased taxation. CHK has had some interesting problems including a CEO who unwisely leveraged his company stock and got it yanked out from under him by margin calls. Perhaps that is not the only unwise move he has made.
Saturday, February 21, 2009
Blue Chip Stocks
What stocks are in fact Blue Chip Stocks? I searched the internet but did not find a list of blue chips.
Let's first define attributes that a blue chip should have.
1. They should have a minimum market capitalization. I will say a minimum of $4 billion dollars.
2. They should have a history of increased sales and earnings going back at least 20 years. It can be somewhat difficult to find financial information for more than 10 years though but not completely impossible. Earnings growth should be significantly greater than the inflation rate.
3. They should have a sound balance sheet with a long term debt/equity ratio no greater than 0.50
4. They should pay a dividend although this could be argued perhaps passionately.
5. Return on equity of at least 15%
One important fact that needs to be stated is that a blue chip stock does not necessarily remain a blue chip stock. One such example would be U S Steel. For many years this company was one of the top blue chips. Not any longer.
Now for my list of what I would consider to be blue chip stocks.
JNJ Johnson and Johnson has a consistent history of increased earnings, sales, and dividends.
BDX Becton Dickinson ditto my comments on JNJ.
WMT Walmart has a consistent history of increased earnings, sales, and dividends except for last year when it did not increase its dividend.
PG Procter & Gamble There are several problems with PG. One is that it has had a history of borrowing lots of money and its d/e has often exceeded 0.50. It has also had more than a couple of earnings stumbles. But it does meet the criteria currently.
NKE Nike is a consistent performer with steady sales and earning growth. It has only in the past few year begun to increase its dividend on an annual basis. The company has virtually no debt. We will have to see how the recession impacts NKE. It may not be too pretty.
KO Coca-Cola has not had so consistent an increase in earnings as the companies above. 1999 and 2000 were disappointing years for KO but it did increase its dividend even in those years.
SYK Stryker has been consistent for the past 8 years but it had stumble in 1999. It has also had problems with anti-competitive behavior.
MCD McDonalds had a couple of stumbles back in 2001 and 2002 and during those years its roe and roa were not too good, but the company did increase its dividend during both years and has performed like a blue chip since.
And acouple of smaller cap stocks:
EXPD Expeditors International has been a steady performer in earning, revenue, and dividends. We will have to see how well it does during this recession. It will be tough.
FDO Familiy Dollar Stores does not quite meet the $4.0 billion market cap criteria. In general it has been a steady performer. It is a steady raiser of its dividend and although its earnings trend has had a few minor bumps along the way and its roe has not been consistantly above 15%, the company nevertheless on average has performed at blue chip standards.
How about some stocks that are on their way to becoming blue chips?
GOOG Google is a company that might eventually make the list. It has not been around long enough to have a decent track record. It has been growing revenue at a steady and remarkable rate and appears to be putting newspapers out of business. Also importantly it has been increasing shareholder equity at a remarkable pace.
And how about a few stocks that fall just a little short of being blue chips?
MSFT Microsoft would be by most standards a blue chip company, but not by mine. They have had a habit of wasting shareholder value by repurchasing company stock. Equity per share has remained constant for the last 10 years, actually has declined during the last 5 years.
Just because a stock might be considered a blue chip does not necessarily mean that it is a good investment. But currently the above stocks are certainly better investments than they have been for many years.
Let's first define attributes that a blue chip should have.
1. They should have a minimum market capitalization. I will say a minimum of $4 billion dollars.
2. They should have a history of increased sales and earnings going back at least 20 years. It can be somewhat difficult to find financial information for more than 10 years though but not completely impossible. Earnings growth should be significantly greater than the inflation rate.
3. They should have a sound balance sheet with a long term debt/equity ratio no greater than 0.50
4. They should pay a dividend although this could be argued perhaps passionately.
5. Return on equity of at least 15%
One important fact that needs to be stated is that a blue chip stock does not necessarily remain a blue chip stock. One such example would be U S Steel. For many years this company was one of the top blue chips. Not any longer.
Now for my list of what I would consider to be blue chip stocks.
JNJ Johnson and Johnson has a consistent history of increased earnings, sales, and dividends.
BDX Becton Dickinson ditto my comments on JNJ.
WMT Walmart has a consistent history of increased earnings, sales, and dividends except for last year when it did not increase its dividend.
PG Procter & Gamble There are several problems with PG. One is that it has had a history of borrowing lots of money and its d/e has often exceeded 0.50. It has also had more than a couple of earnings stumbles. But it does meet the criteria currently.
NKE Nike is a consistent performer with steady sales and earning growth. It has only in the past few year begun to increase its dividend on an annual basis. The company has virtually no debt. We will have to see how the recession impacts NKE. It may not be too pretty.
KO Coca-Cola has not had so consistent an increase in earnings as the companies above. 1999 and 2000 were disappointing years for KO but it did increase its dividend even in those years.
SYK Stryker has been consistent for the past 8 years but it had stumble in 1999. It has also had problems with anti-competitive behavior.
MCD McDonalds had a couple of stumbles back in 2001 and 2002 and during those years its roe and roa were not too good, but the company did increase its dividend during both years and has performed like a blue chip since.
And acouple of smaller cap stocks:
EXPD Expeditors International has been a steady performer in earning, revenue, and dividends. We will have to see how well it does during this recession. It will be tough.
FDO Familiy Dollar Stores does not quite meet the $4.0 billion market cap criteria. In general it has been a steady performer. It is a steady raiser of its dividend and although its earnings trend has had a few minor bumps along the way and its roe has not been consistantly above 15%, the company nevertheless on average has performed at blue chip standards.
How about some stocks that are on their way to becoming blue chips?
GOOG Google is a company that might eventually make the list. It has not been around long enough to have a decent track record. It has been growing revenue at a steady and remarkable rate and appears to be putting newspapers out of business. Also importantly it has been increasing shareholder equity at a remarkable pace.
And how about a few stocks that fall just a little short of being blue chips?
MSFT Microsoft would be by most standards a blue chip company, but not by mine. They have had a habit of wasting shareholder value by repurchasing company stock. Equity per share has remained constant for the last 10 years, actually has declined during the last 5 years.
Just because a stock might be considered a blue chip does not necessarily mean that it is a good investment. But currently the above stocks are certainly better investments than they have been for many years.
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