matisse capital management

Screen: Iron and Steel Companies

The following iron and steel companies are rated four stars or higher by S&P and pay a dividend:

• CRS, Carpenter Technology, 0.9% yield
• GNA, Gerdau Ameristeel Corporation, 0.7% yield
• KUB, Kubota Corporation, 0.6% yield
• NUE, Nucor Corporation, 0.7% yield
• NX, Quanex Corporation, 1.2% yield
• STLD, Steel Dynamics, 0.9% yield
• X, United States Steel Corporation, 0.8% yield

Screen: High Yield Stocks

These companies are rates 5 stars by S & P and have dividend yields above 5%:

• BAC, Bank of America, 5.06% yield
• CZN, Citizens Communications, 6.9% yield
• ETP, Energy Transfer Partners, 6.7% yield
• KMP, Kinder Morgan Energy Partners, 6.9% yield
• WB, Wachovia Corporation, 5.1% yield

Need a Second Home in France?

A house in the countryside, a condo on the Cote d'Azur? Despite the fact that the euro has hit new highs against the dollar recently, there are still many surprisingly affordable homes outside Paris.  On the left are three homes from a recent search; from top to bottom: a €530,000 house with land, 1-1/2 hours south of Paris, a €449,000 house in Cognac, and a €399,000 condo overlooking the sea in Cannes, after the jump.  Property taxes are generally no higher than those in most of the US.

Over the last 10 years, a large number of Britons have have moved to France, in search of more affordable housing, as UK prices have soared.  So many have moved, in fact, that the UK newspaper Telegraph has an entire section devoted to buying there.  Many readers send in pictures of their French digs.  Homes needing some work can easily be had under €300,000; above that price  most will be renovated.  The Telegraph's search engine for homes in France is here.

Analysis Brief: GIL - Gildan Activewear, Inc.

Gildan manufactures premium quality t-shirts, polos and sweatshirts to sell as blanks for companies and designers to screen or logo.  The company is headquartered in Montreal, Canada, and is the leading blank supplier in Canada, the US and Europe. 

P/E = 29.1 x; PEG = 0.73.  At the current price of $38.18 (4.8 x sales) the stock is slightly undervalued.  Value = $39.75 using estimated 2007 EPS of $1.50,  discounted cash flow valuation with 35% increase in earnings each of next 3 years, 3% reversion growth and 10% discount rate.  Note that analyst estimates of the earnings growth rate are higher and recent growth has been above 45%.  The company does not pay a dividend.  ROE = 19%.  Long term debt = 2% of total assets; Gildan has enough cash on its balance sheet to pay this debt in full.  Above left, is GIL over the last year - its share price has increased 52%. In addition to operations in Canada, the US and Europe, there are also manufacturing facilities in the Honduras and Mexico and outlets in Australia.  Gildan was the first t-shirt manufacturer to be certified by Oeko-tex that its product are ecologically friendly, and it markets on this basis.  In recent years, the company has grown through acquisitions; in September it acquired V.I. Pruitt, an Alabama-based sock manufacturer with revenues of $190 million, and it previously acquired Kentucky Derby Hosiery.  Gildan has been successful in containing costs and has a growing operating margin.  One caveat is that the company has had negative earnings surprises in the past, where it has missed analyst targets.  Gildan was founded in 1984. 

Great Companies, Small Countries, Big Returns

The following companies around the world are outside the BRIC economies, but they have provided investors with returns significantly higher than those of the S&P.  Their share price appreciation over the last year and dividend rates are provided below:

WG, Willbros Group Inc., +112% (Panama)

LFL, LAN Airlines, SA, +107%, 2.8% dividend (Chile)

CYD, China Yuchai International, +79%, 0.2% dividend (Singapore)

TEO, Telecom Argentina, +74% (Argentina)

FDP, Fresh Del Monte Produce, +64%, 0.7% dividend (Cayman Islands)

TKC, Turkcell Iletisim, +61%, 2.2% dividend (Turkey)

VCP, Vina Concha y Toro, +58%, 0.6% dividend (Chile)

If You Had to Buy Shares in One Chinese Company

Chinese companies have provided investors some incredible returns over the past year.  Consider the performance of the following ADR's over the last 12 months:

ZNH, China Southern Airlines, +567%

ACH, Aluminum Corporation of China, +287%, 3.8% dividend

YZC, Yanzhou Coal Mining Company, +195%, 0.8% dividend

LFC, China Life Insurance Company, +147%, 0.4% dividend

CHL, China Mobile, +104%, 1.4% dividend

GSH, Guangshen Railway Co., +90%, 1.3% dividend

CEO, CNOOC, Ltd., +89%, 2.2% dividend

SNP, China Petroleum and Chemical, +84%, 1.7% dividend

Foreign Stocks: The Best of India

Below, some great Indian stocks, with their returns over the past year.  Above, an elephant procession in the Jaipur Festival and, after the jump, the incredible narrow gauge Darjeeling Himalaya Railway, a UNESCO World Heritage Site.

IBN, ICICI  Bank, +68%, 1.0% dividend

HDB, HDFC Bank, +68%, 0.5% dividend

SAY, Saytam Computer Services, +25%, 0.6% dividend

PTI, Patni Computer Systems, +22%, 0.6% dividend

VSL, Videsh Sanchar Nigam, Ltd., +19%, 1.1% dividend

SLT, Sterlite Industries India, +15%

Mid-Caps Outperforming the Market

Below are some mid-cap stocks that have significantly outperformed the S&P.  Each has a low level of long-term debt and an easily sustainable payout ratio.  The companies, and their returns over the last year, are as follows:

PCP, Precision Cast Parts, +123%, 0.3% dividend

ALB, Albemarle Corporation, +50%, 1.0% dividend

ROP, Roper Industries, +49%, 0.4% dividend

GEF, Greif, Incorporated, +41%, 1.6% dividend

HSC, Harsco Corporation, +40%, 1.3% dividend

LECO, Lincoln Electric Holdings, +37%, 1.2% dividend

Fed Rate Cut: Was it the Right Thing?

Everyone knows that the Fed cut the federal funds rate 50 basis points on Tuesday.  But was this the right strategy?  Really, the Fed had to do it.  Given the "difficulties" at Countrywide, American Home and Northern Rock, mortgage backed securities became impossible to sell.  This created a crisis of confidence and liquidity, that threatened better capitalized companies.  The consequences of not cutting the rate would have been grim.  So the rate cut was the right short-term strategy, but the hand of the current Fed was forced by Greenspan who left rates too low for too long, a lax policy that created many of the current problems.  The federal funds rate was below 2% between 2002 and 2004, creating negative real interest rates.  The last time this happened was in the mid 1950's.  While this may have been temporarily necessary, it was the wrong strategy for the long term.

More BRIC Politics - Brazil

If you are going to invest in emerging markets, it is certainly helpful to understand the politics, as this   is usually one of the larger risks.  The next elections for the president and senate of Brazil will be in 2010, and it seems there could be a change in the ruling party, given the growing levels of dissatisfaction with it, although it is still quite early.  President Lula da Silva will not be able to run again, as there is a two-term limit.  However, his party, the Worker's Party, has become widely unpopular as it has absolved Renan Calheiros, a party member and head of the senate, of corruption charges in a closed vote.  It was widely thought that he was guilty.  Although da Silva's party is known as the Worker's Party it has been very pro- business, which is good for stocks. But the party is now generally perceived as plagued with corruption, and passing laws that favor agribusiness, banks, and repaying the country's foreign debt.  This is true even though the party platform originally revolved around helping the poor.  There are four other major parties in Brazil: the Social Democracy Party, Socialism and Freedom Party, Democratic Labor Party and Social Liberal Party.  Most of these are perceived as less "pro-business."