One of Peter Schiff’s Top Picks for 2009

By Travis Johnson, Stock Gumshoe, February 26, 2009

Peter Schiff has become one of the rock stars of the economic collapse. If you haven’t yet run across his fans or his critics (and they usually end up at the same place), then here’s the brief:

Schiff is a broker, he runs EuroPacific Capital. He has written two books in the past couple years, one from the “Little Books” series last fall, and the more famous “Crash Proof” in 2007 (you can see Peter Schiff’s books here).

I’m no expert on the man, but he has some extraordinarily rabid fans, and is up there with Jim Cramer among the pundits that bloggers and reporters love to try to take down by disputing or maligning their stock picking records. You can take either side of that debate — personally, I read his stuff sometimes and listen to his podcast on occasion … I find his public persona to be kind of irritating because he is so focused on self promotion and his mantra of “I was right all along,” but that doesn’t mean much … I’m sure there are lots of people in the business who I wouldn’t feel warm and fuzzy about in person. He seems to be a successful broker who’s trying to very aggressively grow his business while the tide is with him, and you have the Gumshoe’s blessing to either love or hate him, as you will.

Generally, what Schiff’s brokers at EuroPacific Capital are selling are dividend-paying stocks that trade on foreign exchanges, and gold and gold certificates (I think he uses the Perth Mint, though there are similar gold certificate and gold storage programs, either allocated or unallocated, all over the world).

Most of the recent criticism of him has been over the fact that many of his clients took big hits, particularly with their foreign stocks, over the last year or so — since he doesn’t run a mutual fund or a recommendations newsletter it’s probably awfully hard to pin down when or how folks might have done who have EuroPacific accounts … and frankly, I tend to have some sympathy with the interest in dividend-paying foreign stocks, even though the past six months of dollar resurgence and emerging market collapse have certainly been cruel to that strategy.

So that’s a long-winded way of getting around to today’s point: Schiff has a “teaser” stock recommendation in the latest issue of his free newsletter (the newsletter is called The Global Investor — I haven’t seen the latest issue up on their website yet, but it is being distributed via email). His teasers are set up a little differently than many — you don’t have to sign up for a trial subscription to anything to find the answer, you just have to call one of his brokers and, one might assume, sit through the sales pitch to open a EuroPacific account.

Or, of course, you can just read on a bit — I don’t want to sit through a sales pitch, either, and I’m sure the mighty Stock Gumshoe can solve this little teaser mystery.

The newsletter article calls this “One of Peter Schiff’s Top Picks for 2009”

Here are some excerpts with the clues:

“Based in Australia, Company #2 represents an attractive mixture of high yield and growth potential, in the highly regulated, low growth utility field. Company #2 is a holding company, comprised of 5 operating units. The largest of these operating units is Western Australia’s principal natural gas transmission pipeline, and the only one connecting the enormous gas reserves in Australia’s North West Shelf with rapidly growing gas demand in South Western Australia (Perth area). With a yield of around 15%, and government regulated and sanctioned monopolies, we believe this company is a very attractive purchase candidate for investors seeking yield.”

Sounds like a good start — I know a lot of folks out there in Gumshoe Nation are yield lovers. What else do we learn, aside from the fact that they persist in calling this “Company #2” for no apparent reason?

They say the company is “a growth story in an otherwise low-growth sector,” because “the natural gas pipeline earns higher returns than other regulated utilities …[and has a] higher than normal rate of return until 2016.”

This investment has several business units in addition to the pipeline:

“1) an electrical utility, 2) 2 regional gas distribution companies, and 3) a power company located in the US. All of the 4 operating units are government regulated, natural monopolies that should provide stable, predictable earnings in these uncertain times….

“While this company, like most others in the utilities sector, is highly leveraged, rising interest rates have a limited effect on the profit and cash flow.”

Some other tidbits? Most of the debt portfolio doesn’t need to be refinanced until 2012, and it has reduced its leverage a little bit since the IPO. Schiff thinks they will grow distributions (dividends) by 5% a year going forward.

And on the stock price details …

“The company reached its 52 week high of A$3.48 in June 2008 and its low of A$1.60 in November of 2008. At a current price of around A$1.90, the company has a market cap of about A$1.2 billion and is expected to yield about 15% over the next year. The company is trading below its book value per share. The P/E ratio is 8.4 times projected 2009 earnings. The cash flow multiple, based on 2009 estimates, is 3.3.”

OK … so we feed all that into the hopper, and we find that this company is almost certainly …

DUET Group (DUE on the Australian exchange, DUETF on the pink sheets)

The shares have fallen a bit further, to A$1.68 (that would be about $1.09 at the current exchange rate) — they just released earnings, which you can see here, though the dividend distribution was announced earlier for last year (and the twice-yearly dividend was paid just last week, I think).

They paid out .14125 cents per share (all these numbers are for Australian dollars) for the last six months, which they say has them on pace to deliver twice that amount, as guided, for FY09 (that would be .2825, if you don’t want to do the math). If that is indeed the current annual dividend, the yield translates to about 16.8% now. Not too shabby, though I have no idea what the tax treatment might be. Those who own the shares in Australia and enroll in their dividend reinvestment plan get a slight discount for those DRIP shares.

So who are these guys? The company looks like it is essentially an investment vehicle run by Macquarie, the big Australian bank that runs infrastructure investment funds around the world (and had some of them really get clobbered over the past year or so, especially some of the more leveraged ones).

DUET stands for Duet Utility and Energy Trust, and what trades at this ticker is a “stapled” unit that appears to actually be several trusts smooshed together with one public company. You can have a look here at their organizational chart — be warned, it may give you a headache.

It really does own much of a critical pipeline — that part of the tease refers to their 60% ownership of the Dampier Bunbury Pipeline (learn more about that here if you like). And they do own part of a US utility, Duquesne Light … if you want to see the full portfolio that information is here.

So … high yield, pretty significantly leveraged but perhaps not dangerously so (not sure what a standard would be for these folks, but they’re about 66% leveraged, so that yield probably depends on their core utility businesses and the pipeline continuing to perform at least reasonably well). They’re probably not terribly connected with the US dollar (which Schiff believes will ultimately fall significantly), the company largely operates in regulated businesses (though I have absolutely no idea what the regulatory framework for utilities is in Australia), and the company seems optimistic about their own future.

Is that enough for you? Let us know with a comment below, and feel free to share if you’ve dug into DUET Group to see what they’re all about. I don’t own any stock mentioned above, though I am invested in a couple US pipeline MLPs.

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16 Comments on "One of Peter Schiff’s Top Picks for 2009"

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SageNot
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SageNot
February 27, 2009 10:19 am
http://www.duet.net.au/duet/investorcentre/distributions.htm Peter Schif needs to mend his reputation, & his insistence that the dollar will tank, while his foreign picks will shine. He’s been wrong for most of 2008 (maybe even part of 2007 too) but I’ll give him credit for this beauty. That’s quite a yield for a near penny stock, although Yahoo insists on NOT giving us the converted yields, what are we, chopped liver? Anyone who hasn’t seen Peter live is in for a treat, right or wrong, he’s the best, in his own mind. I lost track of his FREE newsletter but in the one email… Read more »
vaag
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vaag
February 27, 2009 12:23 pm

The foundation behind all of the Peter Schiff investment philosophy seems to be: How long can a countries economy survive when most everything purchased is produced in a foreign land in exchange for a piece of paper(U.S.$). A good argument, I think?

Fabian
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Fabian
February 27, 2009 12:49 pm
Some diversification through the AUS$ makes sense to me. It really dropped well against US$ and the country is pretty well managed. Of course, a rebound of the AUS$ is linked to commodities but that’s not something that worries me too much; when the economy will rebound so will commodities. I am personally invested in IAF which is a closed end fund on the Australian market; advantage diversification, draw back a good deal of financial. I still love IAF better than a single bet on one company given the times and the leverage problem (66% is a lot if your… Read more »
Tor(Victor)
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Tor(Victor)
February 27, 2009 1:29 pm

Recently Macquarie bought out Puget Sound Energy, a major utility here in the NorthWest. Everybody was against this since we knew that in the long run our cost would do nothing but go up. After a nasty fight the Utility Commission finaly decided in favor of the merger. They promised not to steal our assets One minor plus is that we will get a merger credit of $0.00552/therm for the next 10 years. Not much against the current cost of $1.37/term. But its something.

JohnnnyB
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JohnnnyB
February 27, 2009 3:30 pm
Four men were calling the declining market well ahead of its demise. Three of the four hit the nail on the head and were publicly ridiculed; Nouri Roubini given the uncomplimentary title “Dr. Doom; Nassim Nicholas Taleb the author of The Black Swan; and of course the subject of todays essay Peter Schiff. Peter has been seen in a video clip titled “Video of The Year” by some in the news media in which he calls the fatal market downturn correctly, while other gurus on the panel of the TV interview practically laughed him off the show and suggested investing… Read more »
john sloan
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February 27, 2009 4:20 pm

Good post by JohnnnyB
Taleb and Roubini are great – Mauldin even more so – but the top prophet is Martin Weiss.

Jim
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Jim
February 27, 2009 5:59 pm
I have had a europac account for a number of years and though Mr. Schiff has been right on some of his points, unless you have good amounts of cash to play with in your account, people don’t return your calls after numerous voice and emails, even to Mr. Schiff himself. I have legitimate beef with his brokerage from money I lost because you can’t speak to your broker on the phone in order to place sell orders before certain stocks they recommended tanked. Though they were decent stocks, I can only hope they will recover. I’m positive if I… Read more »
peik van waveren
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peik van waveren
February 28, 2009 5:34 am

Martin Weiss? Really? I took his advice about Y2K and I still get ribbed by my friends, and family!

Medstuff
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Medstuff
March 1, 2009 10:18 am

John Mauldin certainly seems to be a favorite. Even he undercalled the severity of this correction – he is the “muddle through” guy. Peter Grandich should also be added to our list of prophets, although he got hurt on junior miners, BUT AT LEAST HE ADMITS IT.

DAVID HATHAWAY
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DAVID HATHAWAY
March 1, 2009 12:25 pm
NEWSLETTERS The value of newsletters are determined from two very disparate points of view. 1. You and I judge them on whether we make or lose money on their recommendations. 2. The authors and publishers judge them on “how clever” the text is and whether or not they make money from their subscriptions. When I was young and naive (sp?) I thought the world ran on principles, now I percieve it to run on bravado, bullying and bullshit. But even with that dark outlook, the sun comes up every morning and once in a while someone surprizes me by making… Read more »
singh
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singh
March 1, 2009 10:03 pm
louis navallier new pick anyone kows name?? This One Little Stock Could Make You Rich The reason is simple: While Bolivia may control 50% of the world’s lithium, our company controls 30% of the world’s market share. How can this be? Because unlike Bolivia’s vast untapped reserves, this company has one of most sophisticated mining operations in the world. And—most important—the company is located in a country that is very friendly to America’s energy needs. So while Bolivia attempts to send the lithium prices higher our company will not only see its market share increase but will automatically profit. Which… Read more »
WEL
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WEL
March 2, 2009 7:16 pm

MAXIDEX DEXAMETHASONE WARNING

I had eye surgery and in the post-op pack was MAXIDEX(dexamethasone) drops by ALCON LABS.

Two days later I was BLIND

Use Google and enter EPOCRATES MAXIDEX REACTION to verify

Or call 800-757-9195

SageNot
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SageNot
February 27, 2009 11:19 pm
What country doesn’t have pieces of the same paper as their currency? Bags of gold ain’t going t/b the next rate of exchange. Aren’t you aware that the CEO’s in this country decided to seek cheaper labor elsewhere, so that their perks & remuneration continued at the highest levels possible. Face it, the Bush admin. encouraged the job’s export & while the Republicans were in charge, Congress couldn’t thwart the exodus. Get ready for a revival of the union movement, even though that will tamp down the recovery needed for our country to prosper again. If you’re a liberal, you… Read more »
SageNot
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SageNot
February 27, 2009 11:44 pm

Don’t forget Gary Shilling, he was bearish in every appearance last year.

John Mauldin is my fave though, I spent more than half my career in Futures on Wall St., mostly in all areas of the those markets. Had I known of Mauldin back then, I’m certain that my life would’ve been less stressful, he knows the future’s markets cold.

SageNot
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SageNot
February 28, 2009 1:31 pm
http://articles.mercola.com/sites/articles/archive/2009/02/28/Ron-Paul–How-to-End-the-Current-Economic-Crisis.aspx The 2nd video is Schiff on FNC, & it’s laughable how he passes over the 35% to 60% losses his clients suffered last year. He’s still dead wrong on the dollar & inflation; but to hear him talk, it’s inevitable. Yeah, & how many of his poor suffering clients will have skin left to invest with him? Both Dr. Ron Paul & Gary Schilling were predicting this economic fallout long before Schiff did, & James Grant was saying this in the late ’90’s. Today Obama says “Bring it ON!” I think I’m going to revive my blog, only it… Read more »
Truthpeeler
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Truthpeeler
March 1, 2009 4:06 pm

Rots of ruck, as they say. I for one am quite happy that a president finally is actually keeping his campaign promises! Yes. You are right if you assume I am one of the “great unwashed” making less than a quarter-million a year.

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