Thursday, 05/15/08
Posted 05/15/08,  10:03 pm ET

(Scroll down to see Jim's comments below)

 
 
Today's date:  Thursday, 05/15/08

  Dow Jones: 12,992  + 94
  NASDAQ:   2,533  + 37
  S&P 500:   1,423  + 14
 
 
 
 
 
First Segment
 
 
Opening Segment 1 Title: 'Red Hot Chile' - 1st Stock

.  .  .  .  .

Featured Stock(s): Banco Santander-Chile (SAN)

See SAN's official website here.

See the Yahoo! Finance profile for SAN here.



See Opening Segment 2, below...
 
After this segment, you can see Jim's Lightning Round picks here...

        
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...

Banco Santander-Chile (SAN)!...

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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Stock Snapshots - Includes all stocks mentioned above

 

 

Jim
Cramer's
rating on
this stock

STOCK
SYMBOL

Closing
price
that
day

Opening
price
next
day

Full Company Name/Comments
(see comments above for each)


SAN

51.05

na

Banco Santander-Chile (SAN)


       

         
 

 

 



See all of tonight's stocks' latest quotes on Yahoo! Finance



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Second Segment
 
 
Opening Segment 2 Title: 'Red Hot Chile' - 2nd Stock

.  .  .  .  .

Featured Stock(s): Enersis S.A. (ENI)

See ENI's official website here.

See the Yahoo! Finance profile for ENI here.

 
After this segment, you can see Jim's Lightning Round picks here...

        

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...

It's Enersis S.A. (ENI)...

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.