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International Delights

October 20, 2009 – Comments (11) | RELATED TICKERS: EWA , MBT , ACH

Despite a rapid outperformance in international stocks in relation to companies in the United States, I'm definitely feeling that increasing bets on foreign companies is the way to go. I simply don't have any faith in the ability of the US stock markets to continue higher from these levels, especially with unemployment rates still rising and GDP's growing rapidly in other parts of the world. The US could be entering a nasty period of stagflation as many here have contended, so for the moment let's abandon the idea of finding value in the US (because trust me, there aren't any value companies left) and look abroad to find some international delights!

Australia MSCI Index (NYSE: EWA)

Australia is absolutely the most logical investment when looking abroad. Notice how I didn't automatically say China like everyone else does? Australia literally has everything going for it right now. Unemployment is leveling off and is still rather low considering how poorly other parts of the world are doing. GDP figures show that Australia is firmly out of its recessionary period. Its dollar is performing incredibly well versus the US dollar and they became the first large nation to raise interest rates signaling strength in the economy. One of the most underrated growth stories here is that no country is so intrinsically tied to metal prices and mining more so than Australia. Consider that a large percentage of their index is made up of gold, silver and diamond mining companies and then look at how those commodities have responded over the last six months and you'll realize that this huge move by Australia over the last seven months CAN continue. Australia could be growing faster than any other G8 nation in 2010-2011 as far as I'm concerned and I think you need to have money invested in their rejuvinated economy.

Russian Mobile Sisters; Mobile Telesystems OJSC (NYSE: MBT) & VimpelCom (NYSE: VIP)

The Russian stock market can absolutely be a crapshoot at times so some caution needs to be exercised here, but if you are going to make the dive into Russia, why not do it with two large-cap, high-growth, mobile telecommunication prodivers. Mobile Telesystems and VimpelCom are the two largest providers of mobile services in Russia and the outlying countries. Though they are bitter rivals, snatching up landline and broadband companies like mad as of late, I don't feel that either one has the natural advantage. Both companies can expect revenue growth in the 15-20% range in 2010 despite a weakened economy and average revenue per user has stabilized since 2008. It's absolutely amazing just how unsaturated the market for mobile services still is in the majority of MBT & VIPs coverage areas. Whereas in the US it's absolutely impossible to find a growth story in the telecom sector (I dare you, go find one that isn't indebted up to its ears), Russia is overflowing. At forward price to earnings ratios of 10-11 even after runs of 200-300% since their bottoms in March I think you have plenty of upside potential left. Also keep in mind that despite the price of oil having nothing to do with two telecom companies, oil accounts for a huge portion of Russia's revenues and can ultimately make or break their stock market. It would therefore be wise to monitor major fluctuations in the price of oil as it could be beneficial or detrimental to the sentiment and therefore movement of your stock prices in MBT & VIP.

Aluminum Corporation of China (NYSE: ACH)

Ok, you eventually knew that I was going to throw at least some sort of growth story or two in from China and here's one. Aluminum Corporation of China isn't a surprise story, most people are very aware of just how good this company can be when aluminum prices are cooperating and just how bad they can be when commodity prices are falling. Although I despise using Alcoa (NYSE: AA) as an example for anything as they are perhaps the most inconsistent company used in any index, we did see remarkably better than expected earnings and revenues from them a little over one week ago. Attributable to this revenue driven growth was a near 40% rise in aluminum prices and a stabilizing economy (which I'm still not sold on yet in case you haven't noticed). The funny thing about aluminum prices is that it takes roughly 3-6 months before you begin to notice the revenue and profit driven effects of those higher prices. What that basically means is if you think aluminum company earnings are good now, wait until Q1 and Q2 2010 when we really have some blowout quarters! There is little analyst coverage in the US of ACH despite it being a 16 billion dollar company so take advantage of the lack of earnings estimates in this stock.

A-Power Energy Generation Systems (NASD: APWR)

A-Power provides power grids and power generation systems to industrial companies in China but I think the real potential here lies in their wind turbine production. It's no secret that the past three years have been spent by investors attempting to seek out the next alternative fuel generation stock. We've had solar stocks rally, fuel cell companies jump and even to some extent wind generation companies which is where APWR falls. The revenue growth and profit potential here are huge, the only problem I run into with APWR is their inability thus far to own up to those expectations. Much of APWR's stock price is built upon the expectation of making timely deliveries and receiving payment on its wind turbines. So far, APWR has fallen behind on delivery of all of its wind turbines. If APWR can get its hide into gear, they could be staring down a forward price to earnings of something like 8-9 times 2010 earnings. A-Power has a lot of cash on its balance sheet and could potentially see a near doubling in its revenue next year if all goes well. Either way, A-Power looks like a solid longer-term play if you can get by the gimmick-nature of the alternative energy generation sector right now.

Satyam Computer Services (NYSE: SAT)

Satyam Computer Services is an Indian business process outsourcing as well as an information technologies company. Satyam dropped a bombshell on the market in January 2009 regarding the recognition of revenue and a restatement of earnings and its balance sheet. Given that we are over nine months out of this event now, we have been shown that Satyam does have a viable business here with a good balance sheet of cash (over $3 worth) and a forward price to earnings of 8. Revenues have rebounded from dismal levels to show growth in the 10-20% range which is where I would expect it. Earning back investor trust is going to be the tough part but on a valuation basis I have to give Satyam my whole-hearted thumbs up. If you're going to play a turbulent Indian stock market, why not go with a turbulent stock!

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