Stock Buy: Bank Of Montreal

 

 

Bank of Montreal (BMO: 55.73 +1.35 +2.48%) continues to rebound from the darkest days of the financial crisis as it recently surprised on fiscal second quarter estimates by 10.3%.

Bank of Montreal is among Canada's largest banks, offering personal, corporate and commercial banking services in North America.

Revenue and Net Income Rise in the Second Quarter

On May 26, the company reported fiscal second quarter 2010 results and, once again, year over year comparisons were good. It was the fifth consecutive quarter of rising revenue.

Net income nearly doubled to $745 million from $387 million in 2009.

Credit losses also improved, with provisions falling to $249 million from $372 million in the second quarter of 2009.

Revenue improved in most of its segments. It rose 27% to $864 million in the BMO Capital Markets group as trading revenues were significantly higher than the prior year.

The company also acquired assets and liabilities of a Rockford, Illinois-based bank from the FDIC. It had 52 branches which added about US$2.2 billion in deposits and US$2.5 billion in assets to Bank of Montreal's balance sheets.

The acquisition expanded its branch network to communities in northern Illinois and southern Wisconsin where it already had a strong commercial lending business.

Zacks Consensus Estimates Move Higher

As we've been seeing for the past year or so, Bank of Montreal would beat on the quarter, and then the estimates would rise. That happened again after the second quarter results.

3 estimates have moved higher for fiscal 2010 in the last 30 days which has pushed the Zacks Consensus up by 9 cents to $4.70 per share.

Value Fundamentals

Bank of Montreal continues to be a value stock. It has a forward P/E of 11.5, which is under the industry average of 12.2.

It also pays out a juicy dividend, that is currently yielding 4.9%.

Bank of Montreal is now a Zacks #2 Rank (buy) stock.

Read the Apr 5, 2010 article.

Update to Previous Value Zacks Rank Buy Stocks

Nelnet, Inc. (NNI: 19.37 +0.65 +3.47%) is getting its finances in order ahead of planned July 1 federal changes in student loans. While the stock is cheap, at 5.1x forward earnings, 2011 is the "unknown" for the company as the new regulations really bite. Read the full article.

Medical Action Industries Inc. (MDCI: 12.25 +0.04 +0.33%) has attractive valuations. It is trading at 12.7x earnings which is well under the industry average of 21.3. Read the full article.

Conn's Inc. (CONN: 5.996 +0.196 +3.38%) has surprised on the Zacks Consensus two quarters in a row but sales have recently taken a dive. Is retail telling us the recovery is fading? Read the full article.

Sotheby's (BID: 23.69 +1.42 +6.38%) is a stock that shouldn't be on a value investor's radar. The recent market downturn has suddenly pushed it into "value" territory as its forward P/E has now dropped to 14.9. Read the full article.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

Oil Espionage: Feel The Wrath Of China!

 

An American geologist– Xue Feng–was sentenced to eight years in prison for gathering data on China's oil industry, as reported by the Associated Press today:

"[The] verdict said Xue received documents on geological conditions of onshore oil wells and a database that gave the coordinates of more than 30,000 oil and gas wells belonging to China National Petroleum Corporation and listed subsidiary PetroChina Ltd. That information….was sold to IHS Energy, the U.S. consultancy Xue worked for and now known as IHS Inc."

While it is still unclear whether Xue actually committed the alleged act, oil industry espionage is hardly anything new.

Highlighting "cyberspies" are increasingly targeting strategically important businesses, The Christian Science Monitor did an in-depth report in January that at least three U.S. major oil companies - Exxon Mobil (XOM: 57.22 +0.65 +1.15%), ConocoPhillips (COP: 49.91 +1.09 +2.23%), and Marathon Oil (MRO: 31.4901 +0.6601 +2.14%) -  were the target of a series of cyber attacks.

The "hacking" was aimed at the valuable "bid data" detailing the quantity, value, and location of oil discoveries worldwide. Oil companies typically spend many millions of dollars to find the next big profitable discovery. Other countries or competitors may very well save considerable time and money and gain a competitive edge, or advantage in a bidding war, by employing cyberspies to steal such valuable information.

Although the Monitor article suggested China could be the culprit behind the cyber attacks on the U.S. oil companies, there's no real evidence of China's involvement.

With the country's economy consuming huge amounts of energy, China has been among the most aggressive in grabbing available resource base around the world.  As such, it is probably not a surprise that China will be inclined to impose harsh punishment to anyone that Beijing perceives as undermining this endeavor.

Xue's eight-year sentence is actually consistent with the four employees of mining giant Rio Tinto (RTP: 46.12 +1.79 +4.04%), including one Australian national. The four received jail terms ranging from seven to 14 years earlier this year on bribery and trade secrets charges.

The Associated Press said the U.S. Embassy issued a statement calling for Xue's immediate release and deportation to the United States.

Meanwhile, the NY Times described "American officials reacted with dismay and puzzlement" to the eight-year prison sentence imposed, which seems like a case of amnesia, since the U.S. is no stranger to the heavy jail terms typically handed down to spies, even in economic cases.

Nonetheless, this case does punctuate the global battle over scarce resources, and the wrath of China if Beijing senses a threat to its national interest.

 

Taseko Mines - Now Is Definitely Not The Time To Sell Into Panic

 

Late Friday,  the Federal Review Panel came out with a recommendation that will be forwarded to the Prime Minister and his cabinet assessing the environmental impact of the mine.  The Federal Review Panel did not weigh in the economic affects of this project.  They made environmental recommendations for Taseko Mines (TGB: 3.7201 -0.1999 -5.10%) to take if the mine is approved.

I believe the Prime Minister, along with the Cabinet will support the British Columbia Provincial Approval based on the opinion that the economic benefits far outweigh the environmental impact.

The mining industry is crucial to British Columbia's Gross Domestic Product and brings in over 8 billion dollars to British Columbia a year. A major concern is that the construction of new mines has been declining.  Many mines are closing and there has been a rapid decline of economic reserves.  This has seriously affected poverty levels and unemployment rates.

Prosperity is British Columbia's flagship project that will bring in 400 million dollars of revenue a year and get many back to work.  Now the cabinet has recommendations from the panel on what Taseko should improve if the project is approved.  The project is very popular in British Columbia and I do not believe that the Prime Minister and Cabinet will go against British Columbia's approval.  Their approval was based on the belief that the massive economic benefits would far outweigh the environmental loss to the local community.  If the Prime Minister rules against the Province, it will have devastating effects not only on British Columbia, but on Canada and its status as a friendly mining jurisdiction.  This status brings in huge amounts of investment capital which is crucial for economic development.

The news related sell-off creates another opportunity for investors to buy Taseko at bargain prices.  In January I recommended readers to take profit as it was time to sell on good news and when readers were up 250%. Now is the opposite time.  I believe this is the time to buy when everyone else is fearful especially if you are still holding shares.  Now is definitely not the time to sell into a panic.  Prosperity is far from over.

 

The news related break of the moving averages might appear negative but this decline has not shown to be high volume correction.  I expect there to be a move higher as many sold off with the news coming off the wire and do not understand the macroeconomic effects of this project.  Subscribers are still up over 100% even though many should have taken profits when I recommended and kept the 15% trailing stop loss which I also made sure for subscribers to have.  If you did not take profits with the 15% trailing stop loss and are still holding, I would recommend waiting until September until the Cabinet and the Prime Minister make their decision which takes into consideration other variables than the environment alone and not feed into the panic selling.

 

Campbell Soup Stock Poised To Keep Its Winning Streak Intact

 

I first recommended Campbell Soup Co. (CPB: 35.585 +0.275 +0.78%) on June 1, 2009. At the time of our recommendation, our price target was a minimum of $32. The stock is now trading just above $35 today - a 27% increase.

What's more is that Campbell, which boasts a strong brand and above-average international sales potential, is poised to keep its winning streak intact.

The market sometimes offers us compelling propositions, like it did last year, when the stock inexplicably sold off. We took ready advantage of the situation. Campbell Soup has a very large, stable and increasing cashflow. It is so stable that it is almost boring. In fact, this company's stability qualifies it more as a dividend play than anything else.

In the two consecutive quarters following our initial recommendation, Campbell Soup torched estimates, as analysts on Wall Street had not caught on to our emerging markets growth story. The Street caught on in the last quarter but still has not fully recognized this company's potential.

But to be on the safe side, lets review the investment proposition then and see if anything has changed.

The bottom line is that Campbell Soup enjoys a huge and very stable cashflow. This monster cashflow is the product of the company's unquestioned dominance of the U.S. soup market, and increasingly, its emerging market profits. The company's nearest U.S. competitor sells one-seventh of what Campbell sells. This profitability generates operating margins of some 25% — twice that of other consumer staple companies. And the high certainty regarding Campbell's cashflow lets it carry a high level of leverage that brings their return on equity to an astounding 72%!

The end result of Campbell Soup's soup market dominance and profitable execution is a 3.1% dividend yield. And that dividend is very safe, since it represents less than half the company's profits. It also compares very favorably with the less than 3% yield that you'd get on 10-year U.S. Treasuries. And while Campbell Soup can lift its prices in accordance with inflation, investors lose money on U.S. Treasuries if inflation increases and yields move up.

Campbell Soup also offers a huge upside based on its strong emerging market growth.

Additionally, the demand for soup could actually grow faster in an economic downturn, because consumers switch to cheaper foodstuffs to save money. That means we are covered on the economic downside, guarded against inflation and getting higher yield than we would sitting on 10-year Treasuries. And that's in addition to the huge upside presented by growth in emerging markets - specifically Russia and China, which respectively are the largest and second-largest soup markets in the world.

Russia's market is basically wide open for Campbell Soup's products, because most of that country's citizens make their own soups from raw meats and vegetables. But ready-made soups are cheaper and more convenient, which means the product is destined to find a mass following.

Meanwhile, Campbell keeps executing well in cost controls, and its marketing programs - with superior market segmentation and product positioning - have allowed for growth with fewer promotions. This has resulted in expanded margins, which together with the emerging market expansion keeps leading to continued positive earnings surprises.

So if you don't consider consumer staples growth candidates, think again.

Remember, Warren Buffet has made a fortune on another "boring" consumer staple company that seemed to be maxed out in the United States: The Coca-Cola Co. (KO: 50.40 +0.35 +0.70%). While the entire analyst community was asleep at the wheel, Warren saw the compelling long-term value of replicating the company's success in hundreds of countries around the world. So he took a long-term position in the stock.

That's exactly what we're aiming to do with Campbell Soup.

While analysts look at the U.S. market's minor developments, not understanding the growth dynamics of exotic countries that they have seldom analyzed and never visited, we will take advantage by remaining constructive on Campbell Soup - even as it approaches most analysts' price targets of around $35 to $37 a share.

The stock is still trading at a discount to the Standard & Poor's 500 Index when the reliability of its earnings should command a premium. Also, on a technical basis, the stock is on a bullish trend and at the bottom of the Bollinger bands. Like the market, it is oversold right now, and sitting on strong support.

This is a short-term entry opportunity for any short-term traders. Finally, we reiterate the highly defensive nature of Campbell Soup's stock and its strong and reliable dividend yield, which compares favorably with 10-year Treasuries. On the basis of continued growth and expanding margins, I am moving my target up to the pre-crash, 2008 high of $40 a share

Recommendation: Buy Campbell Soup Co. (CPB: 35.585 +0.275 +0.78%) at market (**).

(**) - Special Note of Disclosure: Horacio Marquez holds no interest Campbell Soup Co.