donderdag 5 maart 2015

Stock Screener: Take Five: Brazil (EWZ)

Remember my post on KYN, SIMO, TAICY and TYG? All have been doing well. TYG has given a handsome dividend while holding steady while the U.S. dollar was appreciating 20% against other currencies.

Track record 4-0.Time to move on.

If I don't have any ideas anymore what to buy, I use the stock screener.

What you want to do is filter on 4 attributes: market cap, P/E, dividend yield and percentage change.

1) Market Cap: do not choose small companies as they are mostly fraudulent or don't have sustainable earnings. Don't choose big companies because these are not volatile enough to get fast profits from. I'd filter between 200 million and 4 billion.

2) P/E ratio: choose the companies with the lowest P/E ratio, these companies are dirt cheap while still having earnings. Cheap is below P/E of 5. But do not choose below P/E of 2 because those are mostly companies that are going bankrupt or have bad growth.

3) Dividend yield: always choose companies that have dividends, because these companies have real earnings and can prove they have sustainable earnings to reward investors. The higher the better of course, but don't push it above 7% as those companies probably don't have the money to pay out dividends on a regular basis. I'd go for companies with dividends between 3% and 7%.

4) Volatility: don't choose companies that are so volatile. Maximum year over year change should be between the 20% range.



We use the exact same parameters as above and our next winner is: Brazil!

When we just look at how undervalued emerging markets are today compared to the U.S., we can't ignore this. Look at the P/E ratio of emerging markets (11.4) Vs. the U.S. (16.9).

http://4.bp.blogspot.com/-YB25TONZQjc/VNvhwC2KX2I/AAAAAAAAICQ/CCNUpEdG9FM/s1600/fig2.gif

As for the CAPE Shiller P/E ratio, Brazil is below 10 while the U.S is above 25.
http://bonnerandpartners.com/wp-content/uploads/2015/03/cape.png
Brazil was not a favorite of investors due to the elections, the tax increases, corruption, declining Brazilian currency and also due to declining oil and commodity prices. Petrobras is the largest oil company in Brazil and has seen a massive decline. But now, the valuations are very good. We have much higher dividend yields than the U.S., lower P/E ratios, lower P/S ratios, lower price to book values etc... If you think the oil and commodity price has bottomed out, Brazil is a good bet. And I'm willing to bet on it for my next stock screener pick no. 5.