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(A Top Pick November 28, 2017. Down 13%). This company trades for less than working capital. You get the whole company for free. Japanese small caps have been hurt over the past 6 months but as trade frictions subside, valuation will become more important again. Futuba makes industrial equipment, such as VFD and OLED displays and touch panels. This is a growth industry and he expects Futaba to do well over the long term.
He doesn’t own automotive stocks. From a valuation standpoint, GM looks really cheap, with a single digit multiple. It has suffered very much recently, as has the whole sector. Over time, the trend is reduced car demand with the increase in car sharing, high-speed trains and other public transport. Streets are way too busy. Millenials are not buying cars the way that previous generations have. This is a capital-intensive business. Even to move the fleet to electric motors requires many billions of dollars. It is too hard, and too expensive, for auto companies to keep up with world trends. There are better places for investors’ money.
When an investor sees a 10% dividend, s/he should understand that the whole world sees the same dividend. The investor should ask whether such a dividend is sustainable. The company has way too much debt and pays out too much cash flow in dividend. The company is a prime candidate for a dividend cut even though its management says it won’t do it. He won’t buy companies that have a lot of debt. Yield 10%.
Owns a couple of other comparable banks. American banks went down today even as the Dow rose to a record high. Global financial stocks are suffering as the yield curve gets flatter. The Fed indicated that a number of rate increases are coming in the next 12 to 18 months, but if those increases have their main effect on the short end of the yield curve, the result will be the dreaded inverted yield curve, which is almost always a precursor to a slowdown in economic activity. The current spread between the 2-year bond yield and the 10-year yield is only 25 basis points. Banks do best when the yield curve is rising, because banks borrow short and lend long. He would not sell a large bank at this point, but he wouldn’t be surprised to see their prices drop further because of the Fed rate cycle.
This was a Canadian success story that expanded too quickly into markets they didn’t understand. There was a proxy battle as the company has tried to stabilize itself. Competitors like Starbucks are eating their lunch. They rose sharply today on a rumour that they might be considering the cannabis business; however, they have not confirmed those plans. He sees a tough haul for the company ahead, and expects them to close down unprofitable locations. DavidsTea needs to regroup and find itself again, rather than expanding in a new direction.
He considers this a healthy yield that is likely to grown. It trades at only 11x earnings. It will be a beneficiary of rising interest rates, which he expects to continue. He expects 10% earnings growth for the next 3 years. This is the largest foreign insurer in Asia (India), which offers huge growth possibilities. Its MFS American operations have turned around. Yield 3.8%. (Analysts’ price target $58.54)
This is the premier global investment bank. They are the best run bank in this space. They were not damaged in the financial crisis. But Goldman Sachs has suffered along with the other large banks. Investors have the chance to buy it now near 11 times current earnings and perhaps 9 times next year’s earnings. They are the only major investment bank that has fewer shares outstanding now than before the financial crisis. It continues to use its free cash flow to buy back shares. Fewer large banks are involved in trading activities, and margins for Goldman Sachs’ trading continue to be very strong. Goldman has a new CEO, which causes some concern. However, Goldman has a great track record with management transitions; he expects this to go well. Yield 01.4%. (Analysts’ price target $273.72)
This is another of the great Japanese companies. 75-year old track record. More than half the share price is in net cash. It is a global leader in metal form press equipment and robotics for the auto sector and electronics sector. Japan leads the world in industrial robotics. His estimated fair value for Aida is more than double the current share price. Japan should benefit from the recent trade agreement, but its market has been out of favour for decades. Large firms are beginning to recommend Japan again. Cycles don’t last forever and it is better to buy when a sector is cheap. Yield 2.9%. (Analysts’ price target ¥1240.00 )
(A Top Pick November 28, 2017. Down 4%). Alcoa suffered from the trade barriers, but with the USMCA agreements, he thinks that the tariffs will come off and Alcoa will do better.