Money Map: “Blue-Hot Chips Taking the World by Storm”

By Travis Johnson, Stock Gumshoe, March 1, 2008

Several of you have undoubtedly seen this email come across your screens in the last week or two, it’s been in pretty heavy rotation as far as I can see.

And it’s an ad for just the kind of investments many folks are looking for these days: foreign “blue chip” stocks. The newsletter being teased here is the Money Map VIP Trader, which apparently is worth $3,400 a year but is currently “on sale” for $995.

They’re promising that their next seven picks will be winners or they’ll pay you … I’d read the small print on that one if you’re actually interested in it, but perhaps they’re being genuine. What sounds interesting here are the teaser companies, and there are two:

A dominant and growing force in regional aircraft.

and

A high-tech Cement titan.

It turns out that these are both companies based in Latin America, though I don’t think he says as much in the ad. What he does say is that “The two recommendations in our free white paper report are set for gains totaling 782%. And you can get them in less than an hour.”

Or, unless you’re a reallllly slow reader, you can just continue on down the road here with your friendly neighborhood Gumshoe … I may be wordy, but I won’t make you wait an hour. Or charge you a thousand clams.

Horacio Marquez, the editor of the newsletter, gives us several clues — and I have to offer him a fond word, too, because unless I’m missing something this is the first big ‘ol email teaser I’ve seen that actually has endnotes. He cites the sources for all the facts he claims, including the market caps of these companies, the newspaper articles about trends in their sectors, etc. Nice work, Horacio, even if you did apparently refer to Foreign Policy magazine as the “top-secret Global Economics Paper. I hope you got extra credit from the professor.

The clues?

About the regional aircraft company:

“Right now, one out of every two regional jet aircraft sold in the world come from this astounding company.”

“Our method has just identified this Blue Hot as the only company outside of China that’s contracted to deliver regional jets to this white-hot market… “

(Presumably, “our method” involves more than reading the newspaper … though I wouldn’t be so sure.)

“This Blue Hot has just contracted with a major Chinese company to produce regional jets for the Chinese market at a joint plant in Harbin. Now here’s the thing. China will need an estimated 2,130 regional and executive jets in the coming years.”

OK, so there are many more quotes and footnotes should anyone wish to wade through them … but the Thinkolator has been in idle, tapping it’s foot, for ten minutes now. This regional jet superstar is clearly …

Empresa Brasileira de Aeronutica S.A, more commonly known as Embraer (ERJ)

This is indeed a small company in relation to the behemoths like Airbus or Boeing, and even significantly smaller than competitor Bombardier, but it’s probably the fourth largest private plane manufacturer unless there are still some biggies in Russia. It’s valued at just about $8 billion.

I also like this company and have looked into it before, but always found it just a hair too expensive for my tastes — and it still is, arguably. I expect they will continue to do well, and I agree that they’re in the sweet spot as they build the small 80-120 seat planes that the airlines seem to want, especially the new airlines of Asia and the developing world who are trying to increase service to dramatically underserved areas.

The positives are that they are a strong competitor in this market, they’re moving up into slightly bigger planes (100-130 seats), and they have worldwide exposure and do indeed have some planes going to China.

The negatives are that they’re fairly expensive on valuation, depending on how you peg their growth — the trailing PE is around 20. I don’t know much about the company operationally, but the other potential negative on the macro scale is currency — the Brazilian Real has been on a tear, so Brazilian exporters of large capital goods must be facing some significant margin compression when they sell in dollars. Still, Brazil is quite low-cost so I imagine they’re still doing fine — their profit margin is comparable to Boeing’s, at least upon a quick glance.

And our clues for the second company, the cement titan?

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They call this one “A Company That Just Beat Amazon, eBay, Microsoft and Cisco at Their Own Game…”

Which is pretty clever, if a little silly.

More specifically …

“The Blue-Hot Chip we identified is about to become the world’s largest cement supplier, with operations in 50 different countries. It’s set for a 513% pop. ”

The tech comparison is because of the fact that they bring a new level of technology use and efficiency to the formerly staid cement business …

“It’s the only cement company that owns a satellite telecommunications system. The only one that equipped every one of its trucks in 50 countries with a GPS system. So what’s the big deal? Consider this: This company can deliver ready-mix concrete within 30 minutes after an order is received.”

And yes, there is the obligatory reference to Domino’s pizza — these guys can get you a truck of cement before Howie can get his 1987 Subaru Impreza to your door with your large pepperoni.

There are other clues, too, but, frankly, that’s enough and I’m running short of time. This one is …

Cemex (CX)

Cemex is one of the few dominant cement companies in the world, and a company that I owned shares in until last fall. I’m still on the fence as to whether that was the right thing to do for me personally, but it is undoubtedly a strong and capable company. Cemex is huge in Mexico, of course, but with recent acquisitions it is also a dominant provider of cement in the U.S. and sells the stuff on nearly every continent. They’ve been a little bit frustrated in trying to build a bigger business in Asia, but I expect they’ll continue trying.

Negatives? Well, I sold because I expect the U.S. softness in construction is likely to get worse before it gets better, and the U.S. is by far Cemex’s largest market — especially after their acquisition of Rinker (which is an Australian company, but also primarily focused on selling in the U.S.). It’s quite possible that the weakening commercial and residential construction markets will be made up for by increased road and infrastructure in the U.S., but I’m not sure — and cement is an extremely local market (simply because it’s so heavy and hard to transport), so it’s not like their capacity can just be shipped to China if it’s not used here, they’ll have to take what prices they can get for cement in their local markets.

I agree with the assessment of Cemex as the leader in bringing technological advances to the cement industry, and I admire their management — I just think things might be soft for a while for them, and my position was fairly small so I sold it. There are certainly other big cement companies, but Cemex stands astride much of the world in this category — the other ones you might want to look at if you like this idea are Lafarge, probably the biggest competitor worldwide, and Holcim, the Swiss cement firm that’s also aggressively expanding in emerging markets (and seems to be maybe making more headway in Asia).

On balance, hard to complain about either of these as members of the “Blue Hot Chips” group of emerging multinational powerhouses that are building from the developing world. And frankly, hard to argue with the premise that these kinds of companies are good investments.

Does that mean the Money Map VIP Trader is worth your money? Well, frankly, it’s kind of hard to find investment newsletters these days that aren’t urging purchase of “emerging markets blue chips” like these, and you’ll also find them being breathlessly covered in most issues of Forbes, Fortune or Barron’s. It’s your call whether you want a $1000/year newsletter editor to pick them for you — I’d want to see a verified long term track record, personally, as I would with any newsletter that appealed to me.

And just to throw in a couple extra quickies, they appear in this ad to also be teasing Ranbaxy Laboratories for it’s generic pipeline (including generic Nexium), and Lenovo for it’s ambitious computer sales plans in China.

And I just bet a few members of the Gumshoe faithful have some big-cap growth emerging markets ideas for you … let’s hear ’em!

full disclosure: I do not currently own shares of any company mentioned here, and do not plan to trade in their shares in the coming week.


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