“Rich Man’s Market” Foreign Stock Ideas (Martin Hutchinson)

by Travis Johnson, Stock Gumshoe | September 27, 2010 11:42 am

Martin Hutchinson has a new letter coming out called the Merchant Banker Alert[1], which seems to be focused on finding stocks that are unusual and foreign and perhaps even a bit difficult to trade, the kind of stuff that makes up, or so we’re told, the “rich man’s market” where only the wealthiest 1% invest.

Here’s how he describes this newsletter:

“My plan is to bring you the same top-shelf advice the rich 1% use to accumulate great wealth… and I have the expertise to do it.

“You see, I worked for many years as a ‘merchant banker to the wealthy’ at one of England’s premier banking houses.

“If you don’t know what a “merchant banker” is, don’t be alarmed. Few do. Merchant bankers are personal bankers to the world’s most powerful people.

“Princes, popes, presidents, and prime ministers have all relied on merchant bankers to help them build personal fortunes… keep governments solvent… and wield state power in peace and war.”

He also talks about the world’s fastest growing companies and how dramatically they’ve grown — and points out that they’re mostly foreign stocks, or stocks that make most of their money overseas. Of course, he doesn’t say that he actually picked these stocks … just that it’s “his list” of the five fastest-growing companies in the world, though he goes into it in some detail for a couple of the stocks, including a spiel about number-one grower Kingold which apparently went up by 17,500% (I haven’t checked). And he tells you that if you invested $6,000 in Kingold your investment could have grown to $1.05 million … so you can be forgiven for thinking that he might have had something to do with recommending this stock.

But no, this is just the type of stock he’s hoping (or “trying,” or “planning,” depending on the amount of confidence you want to show) to pick in the future.

As he puts it:

“The Merchant Banker Alert will be your essential guide to making money in the ‘rich man’s market.’ And I promise to make it indispensable.

“You see, now that…

“Rule 144a locks you out of many opportunities..

“And many of the fastest-growing companies exclude retail investors… And the fastest-growing markets are avoiding the U.S..The average investor will be left in the dark about the world’s best opportunities.

“The rich 1% will be informed by their brokers… get invited to private equity deals … or be approached for Rule 144a ‘public offerings.’

“You won’t be. And what’s worse, your broker won’t be able to help. He’ll be in the dark, too – or too busy with bigger game.

“It’s a rich man’s market now, my friend.

“This means YOU will face a challenge in getting reliable and timely information – and access to – the fastest-growing investments in the world.

“That’s where The Merchant Banker Alert comes in. It will even things up.”

Rule 144a, if you’re curious, is an old SEC rule, not something brand new and exciting — it basically just allows institutions to trade among themselves (or with the super wealthy) without the same registration requirements as retail investors face, and to some extent it did open up the US capital markets to foreign companies who didn’t want to actually be listed here. I think it applies to trades of over half a million dollars between institutions.

Oh, and the newsletter is being launched at $695 but that is, naturally, a “very limited” opportunity to get it at a discount to the “listed price” of $4,000. My blather about it that follows is, of course, gratis.

What caught my eye about this ad is that he teases five stocks that are all possible plays on this “rich man’s market” — and he provides a few clues. I won’t be able to get to them all today, I expect, but let me get started with a couple of them:

First, Brazil[2]:

“… of all Brazil’s commodities, agricultural commodities will profit most. Here’s why: Brazil’s tropical climate makes crops grow much faster than elsewhere.

“This becomes a BIG advantage when a growing cycle is long. For example, it can take decades for a tree to grow to useable size. But in Brazil, trees grow six to seven times faster than in the Pacific Northwest or Scandinavia.

“As a result, Brazilian firms can respond more nimbly to changes in world prices. And that means bigger profits.

“Nonetheless, no one is immune to global prices. After a price slump, this company is selling below book value, which makes now a superb time to buy.

“ACTION TO TAKE: Buy this Brazilian agriculture[3] firm before it shoots up 422%.”

OK, so that’s not a huge amount of clue-iness, but I did let the Thinkolator cogitationize a bit on that one for a bit, and I think our secret Brazilian stock must be … Fibria (FBR)

Fibria is the new version of a company you might have more likely heard of, Aracruz Cellulose — they merged with another firm and took the new name a while back. And yes, it is trading at less than book value (though some other Brazil-heavy ag firms are too, like Bunge[4] (BG)). This is a big (market cap around $8 billion) forestry, forest products and cellulose company that trades at a fairly steep PE ratio (forward PE of almost 17 on estimated earnings) — one thing does stand out in looking at the analyst estimates, though, and that’s a serious case of optimism: the company has lost 25% a year for the last five years, according to the scorekeeping on Yahoo[5] Finance, but analysts forecast that they will grow by 66% a year for the next five years — which is why this stock will pop up on a lot of PEG screens (price/earnings/five year growth forecast) with a PEG ratio of just .26 (many investors consider anything under 1 to be an indicator of a possible bargain).

I do own shares of a US company in a similar sector, Rayonier (RYN)[6], but haven’t ever looked at the Brazilian cellulose companies before — there’s a limit to the amount of fiber I need in my diet[7]. If they really are going to turn this merged firm into a growth juggernaut, that would obviously make those “wealthiest 1% happy” … and me, too, if I owned shares, but I can’t tell you how likely or not that might be. If you’re a Fibria enthusiast or detractor, feel free to share your thoughts with a comment below.

And I’ll squeeze in one more quickie for you, since it’s just across the continent in Chile[8]:

“Chile Is One Big “Rock of Gibraltar….”

“My favorite Latin American country right now is Chile. Sending your money there
could be worth 820% to you.

“You see, my new Chile ‘Rock’ has solved one of the world’s most vexing and serious problems – and one I know a lot about.

“When I worked for Eagle Star Insurance[9], I evaluated the solvency of their pension plans. Were the plans bringing in more than they paid out?

“As everyone knows, this is a MASSIVE problem now facing insolvent state pension plans (like Social Security[10]) across the globe.

“But this ‘Rock of Gibraltar’ has solved the problem for Chile!

“Right now, it manages $36 billion in Chile, Peru[11], Ecuador, Mexico[12] and the Dominican Republic, but it should reach $331 billion, a tenfold increase, soon enough.

“Sheltered from the problems in the U.S… munching on a market growing exponentially… this company is about to gap up… even if America defaults!

“ACTION TO TAKE: Buy this “Rock” now and expect 850% growth.”

Well, I don’t even have to refuel the Thinkolator for this one — this must be Administradora de Fondos de Pensiones Provida SA (PVD) … better known as BBVA Provida or AFP Provida, depending on who you ask.

They are a private pension fund manager in Chile, not too different from big asset management firms that handle a lot of 401K accounts here in the US. And this is one that I should have bought when they intrigued me three and a half years ago when I first heard about them from another teaser ad that teased this as the “secret pension plan” [13](the stock was just under $30 at the time, and has always had a high yield[14] — it’s around $60 now, though it did drop well below $20 in the market crash).

Of course, my brain is full of stocks like this that I’m briefly intrigued by, write off quickly as too expensive or simply don’t get to research, then find myself reminded about them years later when they’re up 300% (arg!) or down 80% (yay!). Chile seems to have again become the “flavor of the year” for safety-seeking international investors, not as sexy as Brazil or China[15] but certainly much more stable and one of the better performing markets in recent decades. The latest semiannual dividend payout by PVD was much larger than the previous few years, so there might be some enthusiasm about the next dividend payout, which typically comes in October (I haven’t looked to see if they’ve preannounced that amount, or even if it’s gone ex dividend by now already).

And for what it’s worth, PVD is also a pick of the Motley Fool[16]’s Global Gains newsletter, according to recent disclosures. I’d rather get myself a time machine and go back and buy it at $30, of course, but that’s probably just me being stubborn.

So whaddya think? Want a piece of the biggest private pension administrator in Chile, or the biggest cellulose company in Brazil? Think that would put you in the “richest 1%?” Let us know with a comment below.

(And yes, I’ll try to get to the other three international picks soon … maybe even tomorrow, if nothing more dramatic catches my eye).

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