by Steve McDonald, Bond Strategist, The Oxford Club
Friday, December 21, 2012
In focus this week; the cheapest market in Asia, painfully boring stocks and the sitfa
Which market in Asia has a 3% unemployment rate, a 1.6% inflation rate, never entered a recession during the financial crisis, saw a 29% increase in exports to Southeast Asia, an 11% increase to China and whose stock market has a P/E of 9 based on 2012 numbers?
According to Barron’s, the reason for the cheap valuations is not the numbers. It’s outdated perceptions.
According to Marcus Rosgen, Citigroup’s Asian strategist, the problems that have held back the South were too much corporate leverage that ate into earnings and earnings volatility. But since 2011 they have cut their leverage to 44% and earnings volatility is down from 180% higher than the regional average to 20% lower.
Yet multiples have not improved much.
Their current dividend payout ratio of 14% is the tightest in Asia. They only have to bump it up to 27% to match their neighbors. And their aging population will in all likelihood require increased payouts which should drive prices higher.
Here’s a country that, according to Barclays, very likely will move to developed nation status, has a rising cultural profile, is positioned to be one of the first to benefit from stabilization in the world economy and is still selling at a huge discount to the other emerging powers.
You have to put South Korea on your “must watch” list, because, when this finally pops, it will be huge!
Next, Painfully Boring Stocks
There have been three more articles in the Wall Street Journal and Barron’s since a Barron’s article two weeks ago about how the most boring stocks over 33 countries have outperformed everything for the past 20 years. Everything, yes tech and medical, too.
18% more annually than high-risk companies.
How boring are these companies? Wall Street Analysts won’t even cover them, that’s how boring!
Well, the new articles got a lot more specific and I just had to share some of the numbers with you.
This will floor you. Remember, between the 90’s and now, if you did everything right, which no one can do, at best you’re breaking even.
Altria (NYSE: MO), the cigarette manufacturer, has returned 20% a year since 1968. That’s over a 44-year period, 20% a year.
Kansas City Southern (NYSE: KS), a railroad no one has ever mentioned anywhere, returned 18.1% per year for the past 48 years!
Nucor (NYSE: NUE), a steel company that has been around since 1940, I can’t recall any analyst blowing this horn, returned 17.4% a year since 1974. I was still in college in 1974.
Valspar (NYSE: VAL), a paint company that has been around since 1806, 1806, that’s exciting! 16.3% a year since 1968.
McCormick Spice (NYSE: MKC), you can smell cinnamon from their plants all over parts of Baltimore, up 15.1% a year since 1982.
Altria alone has turned $1,000 into $3.7 million in less than 50 years, and analysts won’t cover them because they are too boring.
Risk is out, stable returns are in!
Finally, The Slap-In-The-Face-Award
The cheek smacker this week goes to all our helpful friends in Washington who run the numbers.
Yes, they are at it again. They’re doing us more favors in the form of higher taxes and now, lower benefits, too. But, now they are doing it in such a way that we can’t see it. Shhh, it’s a secret, or if you prefer, another surprise!
This week their help is called, “chained CPI.”
What is it? A new way of calculating inflation, brought to you by the folks who managed to find a way to have the unemployment number go down as the number of unemployed people looking for work goes up. Whatever!
This new calculation is used to adjust cost of living increases for Social Security and of course, our favorites, tax brackets.
The chained method will result in lower Social Security benefits over time and more taxes, most of which, according to reports, fall on the middle to lower income levels. This is great stuff! The average tax paying schmuck couldn’t come up with this kind of wizardry.
But, and this is the best part, you don’t see any of this happening because the increases and decreases are hidden in the chained part of the calculation.
These folks must have a lot of time on their hands to come up with these ways to get more money in and pay out less without anyone knowing.
Hello! Washington! Please, don’t help us anymore! I don’t think any of us can stand it.
P.S. Our researchers at The Oxford Club have discovered a unique way to profit off of the latest shenanigans of the U.S. Government – and it’s a doozy. To find out more about our exclusive report and how you can access it, click here.
Current Oxford Club members can access the full report here.South Korea: The Cheapest Market in Asia,