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JJC:
Tonight... tonight, we're
going way south of the
border!... To the
most pro-investor,
pro-business... maybe
pro-capital place in Latin
America... my
absolute, everybody knows,
favorite continent is now
producing still one more
great place to invest, and
that is Chile!...
Even though this country
is run by a socialist,
it's the anti-Venezuela...
anti-Hugo Chavez
(President of
Venezuela)... It's
Hugo Chavez turned upside
down!... And I think
it's great place to try to
make some money, which is
why, tonight, I've got not
just one... I've got
two... I've got two great
Chilean stocks...
How great is Chile?...
The estimates for this
year's gross domestic
product... about 3.5%.
You know, they consider
that a recession down
there, because this
country's historical
growth rate is 6%.
When we were growing at
3.5% in America, everyone
treated it like it was a
tremendous economic
expansion... Now
we're barely growing at
all... which is why I
spend so much time...
highlighting these stocks
from foreign countries...
because you need to
expatriate at least 20% of
your portfolio...
20% of your portfolio
should be overseas...
This country, Chile, is
world's largest supplier
of one of the greatest
metals in the world...
copper. They account
for one-third of global
production of copper.
How much do we like copper
on this show... buy, buy,
buy!...
That makes Chile a stealth
play on China, as copper
goes into everything, and
everything is what China's
building... or, more
accurately, after the most
recent earthquake
tragedy... rebuilding...
Get this... The
Chilean government was
actually prudent enough to
save much of the
unexpected surplus money
from the copper it sells,
it order to help the
country weather an
economic downturn...
So, what should we buy?...
Our first Chilean play
is...
I'm lovin' this one,
man... We need
another Latin bank that's
got growth and a dividend,
and I have found it...
SAN. SAN has the
highest credit rating of
all South American
companies. And it's
the largest, most
efficient, most profitable
bank in Chile...
This company is a proxy
for investment in Chile...
That means when any of the
big institutional money
manager want to get a
little exposure to the
country, SAN is the stock
that they think to buy...
. . . .
.
SAN had 23% asset growth
in 2007... 24% return on
equity... impressive
figures.
The company was formed in
2002, by the merger of two
large banks, controlled by
the same parent,
Banco Santander SA (STD)...
It's a stock that's up
20%, including dividend
payments, back on October
11th of last year...
I want to compare that to
some of the U.S. banks in
that same timeframe... How
about
Washington Mutual (WM)?
You think they're up about
20%?... They competing?...
Down 70%!... How
about
Citigroup (C)?...
C is down 49%...
Wachovia Corp. (WB),
down 44%...
If you want to own a
financial, I suggest a
foreign one, like SAN,
even though its parent
company, STD, owns 76% of
its outstanding shares...
You know I never
recommend... well, not
normally recommend
subsidiaries... I've got
to make an exception, in
this case, because SAN is
in such a great
position...
I've got to make an
exception....
Chile's banking sector is
highly regulated... It
means you can't open a
bank if you want to... a
natural barrier to
entry... We can't go down
there... and stop opening
banks against them.
Now, the top five banks,
SAN being #1, control more
than 80% of the loan
market... 80%! In
that situation, it always
pays to go with the
largest and most efficient
player in the space, which
is of course, SAN. It's
the largest and the best
operator. The company
holds 20%+ market share in
every major product
category. And, since rate
cuts are expected in
Chile, during the second
half of the year, this
bank is going to
skyrocket!
Dividend yield for this
one is now a hefty 4.5%...
That's a 21% higher payout
than last year. The
company's trading at just
11x earnings. That's
cheaper than every bank
stock in America...
In its last quarter, SAN's
net operating income
increased by 13% year over
year... We don't have any
(U.S.) banks that have
double-digit growth... Net
interest income by 31%...
Jeez... In Latin America,
you can find banks that
have that kind of growth,
and this is one of them.
Think of it... a growth
financial... who would
have thunk it... but you
do have to go all the way
down to the southern
hemisphere, where the
toilets flush
counter-clockwise to find
it...
. . . .
.
The Bottom Line!:
Even when the Chilean
economy is cooling off,
it's still much hotter
than ours. With the
rate cuts on the way, I
want to buy Banco
Santander-Chile (SAN),
the country's #1 bank.
It's the way to go.
. . . .
.
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JJC:
We're celebrating the most
pro-business, pro-investor
country in Latin America
tonight... No... not
Brazil... It's Chile...
It's better even than
Brazil... if you can
believe that...
I've already given you
Banco Santander-Chile (SAN),
the #1 bank in the
country, and a great proxy
stock... and, since this
country's growth rate
should start kicking into
high gear, from the 3.5%
forecast for 2008... it's
central bank is going to
be pumping money in...
it's going to cut rates.
And then I think a lot of
funds will want to invest
in Chile...
Well, you know what?
We're going to beat them
to the punch...
The next one is a growth
stock that reminds me of
Exelon Corp. (EXC)...
which has been a big win
for us...
We're used to thinking of
utilities as safe,
stagnant growers with good
dividends, here in
America... No... In
a growing Latin American
economy like Chile, you
get growth utilities like
ENI...
This is a growth stock...
I'd say this is a safer,
more defensive play than
Banco Santander-Chile (SAN),
for more conservative
investors who still want
some Chilean exposure...
. . . .
.
The company's operating
income is split down the
middle into two
divisions... power
generation and
distribution. ENI
has transmission assets
that go beyond Chile...
this is why it's a Latin
American proxy... to
Argentina, Brazil,
Columbia and Peru.
I like ENI as much as
CPFL Energia S.A. (CPL),
the Brazilian stock
I recommended back on
April 3rd, for a quick
6.3% gain... This
one hasn't paid any
dividends since I got
behind it, but it's a 7.6%
yield. I tell you,
that's a great stock
still...
But, this vehicle... my
Chilean vehicle... has,
frankly, much better
growth than CPL...
Now, ENI does its power
generation business
through a wholly-owned
subsidiary called Endesa
Chile, which is the
largest private sector
generation company... not
just in Chile, but in all
of Latin America.
Even better, the company
generates cheap,
environmentally-friendly
power, as two-thirds of
what they produce comes
from hydroelectric
facilities...
Now, we like hydro... not
as much as natural gas...
remember, 2008 is the year
of natural gas...
and not as much as wind,
which I thought was 2009,
but now I've been
mentioning it so many
times, I'm thinking it
might be 2008 too.
But, you know what?
Hydropower is cheap.
It's just not convenient
if you're in the desert.
Now, in terms of the power
generation market, a
stable expansion like the
one in Chile, that they've
been experiencing for
years, leads to an
automatic growth in power
consumption and demand for
power.
For the past six years,
ENI's distribution
subsidiary has seen demand
rise by an average of 5%
annually, roughly in line
with Chilean GDP growth.
A lot of people say, well,
how do I play the middle
classification of India,
or China, or Brazil, or
Russia?... Well, the
first thing you have to
think of, is that the
first thing they do with
their (newfound) money is
not go to Burger King,
okay... they get
power, so they can have
appliances...
This is the play on
that...
Now, get this... low
rainfall and the scarcity
of natural gas in Chile,
has recently created the
threat of a power crisis
for some of the
less-regional players.
ENI, on the other hand, is
going to be fine. It could
be the only healthy
utility in a land of
really scarce energy. I
like the sound of that.
Political problems in
Argentina and Bolivia have
led to scarce natural gas
supplies. They've forced
Chilean utilities to
switch to higher-price
fuel oil and diesel...
Again, terrific for ENI,
as it gets two-thirds of
its power from
hydroelectric dams...
Lower water levels have
led to less total volumes
for ENI, but they've also
created higher spreads (in
pricing)... Again, that's
how ENI makes its big
margins and big money...
they've got to pay to
generate power. What it
gets from the consumer,
which is always good for
business, is going to be
much, much more.
Natural gas shortages that
I was talking about...
again, a positive catalyst
for ENI... by spurring
support for this company's
politically-charged
hydroelectric projects
that they have on the
drawing board. This is
Chile's version of energy
independence, the way that
Brazil did it with
sugar-based ethanol...
It's being freed from
Argentinean and Bolivian
natural gas.
ENI has a big investment
plan, aimed at satisfying
the growing demand for
power in the region...
they're going to spend $5
billion in new generation
projects through 2021,
along with roughly $900
million per year to
maintain and grow its
extensive distribution
network... So what I'm
seeing here, is a
multi-year move. This is
not a trade... this is a
multi-year move in ENI.
What else has ENI got
going for it?...
A regulatory structure of
the markets, operations
vastly improved as
countries have adopted a
transparent, market-based
structure... I would never
recommend a foreign stock,
if it didn't look like an
American stock... The
regulators also allow for
improved efficiencies to
benefit shareholders,
rather than customers... I
told you, Chile is very
pro-capital... so there's
more of an incentive to be
efficient and
profitable... much better
than in this country.
The stock, at $17
smackers, with a yield at
2.1%... 19x consensus
earnings estimate... That
is a discount to the
global utility average,
and the low side to its
historical range... so I
think it's wrong.
All right, so what does
all that gobbly-gook
mean?... I think this $17
stock is going to the
mid-$20s, without a lot of
worry...
. . . .
.
The Bottom Line!:
Chile's a great companion
to Brazil, and we've
slighted it for too long
in Cramerica. I
think Enersis S.A.
(ENI)
is a great way to play the
growing demand for power
down there, especially
with cheap, green,
hydroelectric power.
. . . .
.
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