This one comes in as part of a teaser letter for Steve Sjuggerud’s special higher cost newsletter, Sjuggerud Confidential …
“the thing is, finding the bank that didn’t get into U.S. real estate, didn’t fall victim to exotic financial instruments, and didn’t take on too much risk, is like trying to find a needle in a haystack …. However, after some very in depth research, I’m pleased to report that I’ve found such a bank.”
Sjuggerud describes this letter as his way to recommend lower volume or more obscure stocks that he “keeps secret” and saves for the privileged few. That is, of course, the way almost all newsletters make money — get you interested with a $50 subscription, then sell and sell and sell and sell until you’re willing to try a $1000 or $5000 subscription.
It must work pretty well, because pretty much all of them do it. Even the Motley Fool, often described as champions of the little guy, has tried trotting out higher cost newsletters that are more “exclusive” (in their case, the “Million Dollar Portfolio” and “Pay Dirt” services, both of which apparently have waiting lists now — which are probably genuine, but waiting lists must also be one of the better ways to convey exclusivity).
Usually, the rationale for these more expensive services is not that these are their “best” ideas — that would clearly be a slap in the face for the subscribers who subscribe to what then must be the “mediocre ideas” newsletters from that same service. No, the reason they give for most of these more expensive services is that the stocks they choose are low volume or obscure, or hard-to-buy stocks on foreign exchanges, or that the trading is too rapid for a large group to follow.
It’s easy to understand that if you recommend a $50 million market cap stock to 100 people things will probably be fine, but if you recommend that same stock to 5,000 people the price may well double immediately just because of those subscribers. And since we’re in a nice clear market economy here, the best way to keep membership down is to keep prices up — so the logic of these newsletters works fine.
But that doesn’t mean that these “exclusive” ideas are really worth the higher price, or that more obscure or lower volume stocks are necessarily worth more than the most liquid stocks.
And on the other hand, we probably all keep that nagging thought in the back of our minds that these advisors and newsletter editors really are saving their best ideas for these more exclusive services, even if they don’t necessarily admit that.
So that’s a nice long preamble to get into the fact that Steve Sjuggerud is teasing a new financial stock for his more expensive service, which is currently on sale for $850 a year (the service, not the stock — the stock is around $18).
Let’s see if we can figure out what it is.
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Sjuggerud tantalizes with the promise of some pretty remarkable returns from this stock:
“And now it’s time to make a move… one that could let us pocket 50% gains in just 12 months…”
Sounds good, right? Safe, cheap, in an uptrend, 50% gains … added on to the fact that this is a bank, so we can feel like tough guy contrarians, going against the herd to buy the best stocks when financials still smell like the South side of my dog. After a rainstorm.
What clues do we get?
There is a quote from the CEO, which is always nice:
“To tell you frankly, when this whole mess exploded, I actually had to learn what some of these instruments consisted of.”
Brilliant! What better way for a bank to distance itself from the crisis than by protesting that it didn’t even know about these credit instruments that have turned so foul. Hopefully, the fact that they didn’t understand them meant that they didn’t get involved in them.
And that’s more or less what Sjuggerud says:
“You don’t want to hear that a bank CEO doesn’t know what a particular financial instrument is. But in this situation, it’s exactly what we want to hear… You see, the bank I am talking about is a particularly special kind of bank. In fact, I don’t know of any other one like it.
It has no exposure to sub prime… and no exposure to other hazardous financial situations most banks find themselves in. It is one of the most conservative banks in the world, if not the most conservative. And just to make things better, it is cheap, paying a 6% dividend. Nobody follows it. And I have noticed an uptrend developing…”
So is that enough for us to identify this bank stock?
Surely you don’t doubt the mighty Gumshoe … of course, the clues may seem thin, but the Thinkolator is up to the challenge. Only a moment or two of careful cogitationizing, and we can reveal that this stock is …
Banco Latinoamericano de Exportaciones, commonly known as Bladex (BLX)
This is a Panamanian bank, a cooperative construction of the central banks of about a dozen Latin American economies that happens to also be publicly traded. Their corporate mission is fairly simple and targeted — they have, for 30 years, focused on making foreign trade operate more smoothly in Latin America by financing pre-export and post-export loans, managing an export credit system in general, and working on other projects like export insurance, market research and other activities that are designed to promote Latin American trade.
And they do make money. It’s a small bank, with a market cap of less than $700 million, but it trades at a trailing PE of around 9 and does have a yield of close to 5% (Sjuggerud’s numbers, with a 6% yield, look to be from a month or so ago when the shares were trading around $16, they’re currently in the low $18s.
I don’t have any idea whether or not they’ll really be raising the dividend this year, but they have raised it several times in the last few years. Their enterprise value is significantly higher, so they are primarily debt financed, not equity, but that’s not unusual for a financial firm. Their price/book ratio is pretty low at 1.13 — a little higher than Citigroup, but about half of Wells Fargo or Goldman Sachs, or the better Latin American banks like Banco Bilbao Vizcaya Argentaria, just by way of comparison. Though the comparison is probably not so useful, since all of those are massive and much more diversified than BLX. Most big banks do some international trade financing, but I’m not aware of any other bank that has this direct a focus that would make for a better comparison.
So … no real analyst coverage, a small float, a decent dividend … what’s not to like?
Well, it’s hard for me to value this stock.
It has more or less been at this same price for three years, but it did have a wild collapse down to about $2 back in 2002 during the financial crisis that rocked Argentina and Brazil and a few others, and for a while there it traded at a tiny fraction of book value. Might happen again someday?
But more importantly, I want to know why this stock hasn’t done better in recent years.
Nearly every mutual fund in the top five for the last few years has been a Latin American focused fund (with an occasional China fund thrown in last year, if not this year).
Nearly every economy in the region is booming because of commodity prices and economic liberalization.
Why is this foreign trade bank trading at a low PE of 8 or 9 when their borrowers must be booming? Latin American exports have been on a remarkable upswing, from grains to metals to oil to agriculture … why has this stock ended up treading water, though with some fits and starts in between, for four years? During most of that time the PE ratio has stayed fairly steady, with an average between 9 and 11.
If it’s just because it has been kept down by the financial crisis or because investors don’t know about the company, maybe it’s a hidden bargain with improving performance that’s not yet reflected in the stock price, or perhaps it’s the short term fear that a US recession will harm many Latin American economies. If there’s something else keeping the shares from performing as well as the economies they serve, that might be cause for worry — they claim to be confident in their balance sheet and in the credit quality of their borrowers, but I’m no banking analyst and I certainly haven’t looked at their books to that level of detail.
On the flip side, Morningstar says it’s already trading about 50% above fair value and their analyst clearly doesn’t think it’s well run — net interest margin is very low, and the bank’s mission of facilitating trade may be more important to the countries whose central banks are represented on Bladex’s board than is the actual sustainable profitability of the bank and the return on shareholders’ investments. Good points.
It’s also worth noting that the bank is in Panama, so you’re not getting any direct currency benefit from a falling dollar (Panama’s effective currency is the US dollar). Neither would you suffer directly if the dollar suddenly recovers, of course.
So … I don’t know if it’s worth my money, but I am intrigued and will be looking a little deeper. At first glance, I’d probably be more interested in the big diversified banks in Brazil, or maybe even in the pension fund operators (like the Chilean BBVA Provida, which has done very well since we sniffed it out last May) … but I won’t close the door just yet.
To get you started on your research, it would be wise to read the conference call — it was transcribed by Seeking Alpha, so you can read it here. It’s very positive, and that encouraging tone and the results that were announced (this was a little less than two weeks ago) undoubtedly are largely to blame for the shares moving up from their lows of early March, though maybe Sjuggerud’s subscribers had something to do with that, too.