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It seems a perversion, but some large global corporations are healthier than the governments of the countries they reside in. Additionally, these cash-rich companies are now trading at multiples that factor in a lot of economic damage …maybe too much.
Last Friday, I was talking about China Mobile, which is the leading wireless carrier in China. Readers of Emerging Market Winners recognize it as one of the core holdings in the model portfolio. The stock carries an attractive 4% yield, and its growth is tied to China’s emerging consumer market. Without a doubt, it will be a beneficiary of Apple’s introduction of the iPhone in China.
But I forgot to mention the most important point …
China Mobile is hoarding more cash than Apple! In fact, CHL is sitting on more than $50 billion in cash versus $28 billion at Apple. This cash continues to grow at over $6 billion per year. Ideally, this money gets reinvested back into the business to fund growth or pay down debt. However, CHL is highly solvent. From here, they could make acquisitions or announce possible share buy backs.
Share Repurchases
on the Rise
While not common, there are China-based stocks that have share repurchase programs. Perfect World (PWRD) and Giant Interactive (GA) are two recent examples that come to mind.
In Brazil, share buybacks are increasingly popular. Among the large capitalization stocks doing so are Vale (VALE), the iron ore producer; and Telecom de Sao Paulo (VIV), the newly combined wireless carrier, which is partially owned by Telefonica (TEF).
The latest Brazilian entrant into this ring is the sugar and ethanol producer Cosan (CZZ). The $2.8 billion market-valued company announced a $100 million allocation for buy backs. It’s now partnered with Royal Dutch Shell, which is a very profitable, but also highly liquid oil/energy company.
These stock buybacks in emerging markets are clear signs of confidence in higher market valuations and greater financial flexibility in the future for many of these companies.
There are some deals to be found in the U.S. too, with share buybacks and value stories coming to light during the last few days. The most notable …
Warren Buffett’s Berkshire Hathaway announced that it would begin buying back its shares when the value fell below 1.1 times the book value. The company has almost $50 billion in cash, which is nearly 25% of its annual revenues.
So does the Buffett buyback mean that the large cap, S&P 500 stocks are finally a value?
I’m not ready to declare that yet …
I think the dollar is on shaky ground, and the Fed’s “Operation Twist” is just another absurd plan that’s more of Washington’s kick the can down the road mentality.
I do agree with Buffett, though, on his picking a lower valuation benchmark for jumping in to a U.S. stock today.
And that’s why I like cash-rich, undervalued companies in China, Brazil and other emerging markets.
To learn how you can get my recommendations on investing in the world’s fastest-growing economies, the ones with the best combination of political stability and future economic growth, click here.
Best wishes,
Rudy
