This one’s from Christian DeHaemer for Material Profit, one of the “introductory” inexpensive newsletters from Taipan (on sale for $49 at the moment, apparently). This group is no stranger to your friendly neighborhood Gumshoe, but I don’t think I’ve looked at one from Material Profit before (I’ve looked at many from DeHaemer’s other services, most of which are more expensive — they’re all underwater at the moment).
But this is for a stock somehow related to India, which is always interesting for the Gumshoe. And DeHaemer makes a pretty good case for looking at India instead of (or at least, in addition to) other emerging markets.
Why do they think we should invest in India?
India’s strength in services means it has much more impact on the U.S. economy (7X, according to DeHaemer).
“Although you won’t hear this in the mainstream media, smart investors know that Indian companies’ return on equity is 21% compared with 10% for China.”
That’s interesting — I hadn’t seen that stat before. Part of the explanation given is that China is choking off future growth through the “one child” policy, so India is a much younger country. Younger countries are generally faster growing and more vibrant (and sometimes more unstable, though that’s not mentioned).
Here’s a bit more of an excerpt:
“According to a study by the McKinsey Global Institute, if recent growth continues, India’s average household income will triple by 2025. Private spending is projected to skyrocket from $372 billion in 2005 to almost $1.8 trillion just two decades later, making India the fifth largest consumer economy in the world. This global mega-shift, quite possibly, is the “next big thing” in the investment world. Smart investors who can foresee major trends, and understand how to capitalize on them, are the ones who make millions.”
What is the “super safe” $15 stock that DeHaemer believes is the “sleeping giant of India?”
The sell is pretty hard, as usual: “I guarantee it’ll post a triple-digit gain in 12 months… or your money back!
(Over the next five years, you could see 10 times that amount… maybe more!)”
And the description of the company makes it hard to believe that this is a secret to anyone:
“This stock is like owning the equivalent of Caterpillar, U.S. Steel, General Electric, IBM, AT&T, Exxon, Macy’s, A&P and General Motors. That’s because this company provides everything an emerging nation needs — gas, oil, copper, cars, trucks, buses, steel, construction equipment, engineering, computer services, electric power, Internet, telecommunications, tourism, retail stores, food stores and food processing.”
So … that’s enough to discover that this stock is one we looked at just a couple weeks ago … it’s
Tata Motors (TTM)
Now, here’s the part that’s a bit sneaky: Tata Motors is part of the giant Tata Group … but buying TTM is not a particularly great way to get exposure (in any big way, at least) to the rest of the companies in the group. DeHaemer calls this a “secret back door” into Tata and into India — a technique his copywriters have used before, when they called buying Lenovo in Hong Kong a “back door” into Shanghai because the shares would soon go public there. I don’t particularly think that buying the NYSE-listed ADR for one of the 98 or so companies in the Tata Group is really a “top secret back door” into that Group, even though there is plenty of cross-ownership in the Group. The list of Tata companies is here if you’re interested in perusing it — you need a magnifying glass to find Tata Motors in there, though it is a $6 billion company.
Much of Indian business is controlled by a few incredibly wealthy families, which many folks were reminded of when the Forbes billionaires list came out a little while back — and the Tata Group and the Reliance Companies are two of the major conglomerates that run much of the country, particularly the “old” or “dirty” businesses like steel, manufacturing, chemicals, telecom and energy. They have their fingers in nearly everything, of course, but they are not as precisely tied to US outsourcing and computer services, for example, as WiPro or Infosys.
I noted a few things about Tata Motors when I last wrote about them. They are by most accounts the third largest automaker in India, though they’re the only one you can own as an ADR on the US markets, which is a big deal because of how difficult it is for individual investors to buy most Indian companies directly (their market is very restricted for foreign investors, not unlike the domestic Chinese market). Tata Communications (TCL) is also available as an ADR, FYI, in case you’re excited about this particular conglomerate.
And they’ve been in the news quite a bit in this young year, for two reasons: First, they released the “one lakh” car that is the cheapest car in the world, designed to get Indians and folks in other emerging economies off their motorcycles and into automobiles. This is the big revolution that many newsletter folks are touting — the chance to get in on Ford right around the time Henry popularized the car with the Model T. Who knows whether or not it will work out that way (for those who haven’t been investing for more than five years, yes, Ford used to be considered a good investment — OK, not all the time, but often).
But second — and this may have more to do with the current price and prospects — is that Tata is buying the Land Rover and Jaguar names from Ford. So they’re aiming at both the high and low, but there is a reason that Ford is selling those iconic British brands — they’re not making much money. It’s thought by some that this is just Tata’s way to buy respectability and perhaps some manufacturing expertise, though it’s unclear how they’ll use those brands — more of the same, or will they rebuild the brands from their Indian base and start making many more cars than have typically been produced by these niche brands?
What is know is that it’s expensive. And in order to buy these nameplates and build them up in some way, Tata Motors is going to have to sell something else or raise more money. One expectation is that they’ll sell many of their investments in Tata subsidiaries, like Tata steel, etc.
So it may be that instead of getting a small piece of 21st Century India to go along with your car company, you’ll be getting a piece of 20th Century Britain. Maybe that’s what you want, maybe not, but it’s worth considering.
Personally, I’m getting more interested in broader investing in India. I do like foreign conglomerates in general, at least ones that are cheap, but I’m not sure that I’d like to just own an auto business, even one like Tata that has some significant promise (they are also in cutthroat competition with Mahindra & Mahindra and Bajaj and Maruti Suzuki and lots of joint ventures with foreign automakers, as well as the actual foreign nameplates from the US big three and the Japanese big two and several European firms). There will be other low cost cars coming from many of those companies, though the Tata Nano may have a head start, and to me the purchase of the Land Rover and Jaguar brands seems a little too much like a gamble that these low-volume brands can help a high-volume carmaker improve it’s image and competitive posture.
If I were buying into India today, I would start with a look at the really interesting new “fundamental index” ETF from WisdomTree, EPI, that launched about a month ago. You can also look at the PowerShares India ETF, also new (PIN), which has a smaller number of companies (50, versus 150 for EPI) but is market cap weighted like traditional indexes, and there will also probably be an iShares ETF for India fairly soon. I have owned both the Exchange Traded Note for India, INP, and the Closed End India Fund (IFN) in the past, but with good ETFs becoming available for the market I couldn’t justify a premium to NAV for either, so I sold into those premium prices. Roger Nussbaum had a good article about the two current Indian ETFs a few weeks ago, if you’re interested.
My general sense is that India will have a great long term outperformance, albeit with some dramatic volatility, but I am a little bit cautious about my ability to pick specific companies in the market … I think that over the next ten years I’d probably be quite happy with the performance of any ETF that tracked the Indian market. I have invested in one Indian bank (HDB) as a play on growing consumer banking and consumer debt, and I plan to hold those shares for some time, but my next buy in India would probably be an ETF.
full disclosure: I own shares of HDFC Bank but don’t own any other investment mentioned here, and will not trade in any of them for at least three days.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.