The Zacks Analyst Blog Highlights:BBVA Banco Frances, YPF, Grupo Financiero Galicia, Trinity Industries, Canadian Natural Resources and Columbus McKinnon
CHICAGO, June 25, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the BBVA Banco Frances S.A. (NYSE:BFR-Free Report), YPF S.A. (NYSE:YPF-Free Report), Grupo Financiero Galicia S.A. (Nasdaq:GGAL-Free Report), Trinity Industries (NYSE:TRN-Free Report), Canadian Natural Resources (NYSE:CNQ-Free Report) and Columbus McKinnon (Nasdaq:CMCO-Free Report).
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Here are highlights from Tuesday's Analyst Blog:
Argentina's Default Worries: 3 Stocks in Focus
On Sunday, advertisements from the Argentinian government appeared in several major U.S. newspapers. The beleaguered country stepped up its game against hedge fund investors asking US courts to facilitate "fair and balanced" discussions to resolve the deadlock over debt payments. As things stand, Argentina is headed for a sovereign default, a virtual replay of the events of 2001.
First Sovereign Default
In late 2001, Argentina suffered the largest sovereign default in history at the time. The amount was close to $100 billion and the country experienced a virtual evacuation of all foreign capital over the next two years. The situation was resolved through large scale debt restructuring.
The majority of bondholders accepted a government offer to exchange older bonds for newer issues, worth only a fraction of those issued earlier. An economic recovery and the new terms of debt repayment helped the government tide over the crisis over the following years.
Holdouts or Vulture Funds
However, a small fraction of bondholders, around 8%, refused to accept the terms of the two bond swap transactions of 2005 and 2010. They continued to hold the older bonds which ended up with a group of investors who "held on" to obtain greater value.
Others refer to such bondholders as "vulture funds". These are hedge funds or venture capital funds which purchase public debt of entities whose financial positions are precarious. In the Argentinian case, these investors have bought sovereign debt at a low price and are willing to undertake the cost of litigation to obtain the full value of these bonds.
Judgment and its Implications
The plaintiff in question is NML Capital, the largest of such "holdout" bondholders. This company is a subsidiary of Elliot Management Corporation whose CEO Paul Singer wants Argentina to pay the full value of these bonds. NML Capital had purchased the majority of these bonds at very low prices from secondary markets. These purchases were made when the country was already in serious financial trouble.
Last Monday, the US Supreme Court declined to hear an appeal made by the Argentinian government against a lower court ruling. The Second Circuit Court in New York had ruled in favor of NML Capital. The judgment itself does not mean that NML Capital will get paid, but it has other, more serious implications.
The ruling will indirectly force Argentina's hand. The country has to pay the "holdout" bondholders an initial amount of $907 million by June 30. If it fails to do so, it will be unable to use the US financial system to pay those who had agreed to the initial debt restructuring exercise. While, debts owed to the "holdout" group amount to around $1.5 billion, the second group is much larger and their bonds are worth $24 billion.
Argentina's Options
The country's options are extremely limited. Firstly, it can pay the initial amount to the likes of Elliot which would be politically unfeasible for Argentinian President Kirchner. Much of her credibility rests on the success of the debt restructuring exercise, following the default of 2001. The payment would also lead to the country running out of a large chunk of its foreign reserves.
The second option is to default once again. Even though this move will be a consequence of the ruling, the effect would be identical to that of 2001. The country would once again be starved of foreign investment, delivering a body blow to a weak economy.
Settlement in the Cards?
Argentina changed its tone on Monday, asking U.S. District Judge Thomas Griesa for more time to reach a settlement with the group of hedge funds led by NML Capital Ltd. Judge Griesa has appointed Daniel Pollack to oversee negotiations between the Argentinian government and the plaintiffs.
Meanwhile, reports have emerged that Elliot Management is willing to negotiate with Argentina. Further, there are indications that the company may accept bonds or a mix of cash and bonds as payment. The company is evaluating agreements concluded between Argentina and other creditors to arrive at a possible model for a settlement.
Stocks in Focus
Argentina's stocks and bonds registered gains on Monday following the request made to Judge Griesa. The country's Merval stock index gained 8.4%. However, we haven't heard the last word on the matter and the risk of a sovereign default continues to plague Argentina. The country's economy contracted by 0.2% in the first quarter of 2014 following a 1.4% expansion in the fourth quarter of 2013. Inflation is rising and a default could only weaken a beleaguered economy even more. We now examine certain stocks which may be significantly affected in case of a sovereign default.
BBVA Banco Frances S.A. (NYSE:BFR-Free Report) is a full-service banker offering both financial and non-financial services. It has a network of more than 25 branch office focused on middle market businesses and 239 branch offices focused on retail customers. Seven offices are dedicated to servicing institutional and corporate customers.
Financial institutions are the first to feel a systemic shock such as a credit default. However, the company has strong fundamentals and has gained more than 75% year to date. Following reports that the dispute between the Argentinian government and creditors may soon be resolved, the stock gained more than 6.6% on Monday.
BBVA Banco Franc holds a Zacks Rank #1 (Strong Buy). The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 7.10 which makes it an excellent value proposition.
YPF S.A. (NYSE:YPF-Free Report) is an integrated oil and gas company. It has a dominant position in Argentina's exploration, production, refining and marketing sectors, as well as a growing presence in petrochemicals. In 2012, the Argentinian government acquired a majority stake in the company, a move criticized by analysts and investors alike.
However, YPF reached a $5 billion settlement with Spanish oil giant Repsol. This ended a two-year long dispute and also restored Argentina's standing in the international community to a certain extent. Despite the settlement, YPF is a nationalized company and its fortunes are tied closely to that of the nation itself.
Currently the company holds a Zacks Rank #3 (Hold) and has a P/E (F1) of 14.88, compared to an industry average of 17.
Grupo Financiero Galicia S.A. (Nasdaq:GGAL-Free Report) is a financial services holding company. It offers a wide range of financial products and services to large, small and medium business as well as individuals. It offers credit cards and consumer finance across Argentina.
Like BBVA Banco,this company may also be one of the first to feel a systemic impact. It may also be investigated for forex transactions performed on a specific day when the peso lost 12%. However, it is a market leader and these accusations are as yet unfounded.
Apart from a Zacks Rank #3 (Hold), the company has a P/E (F1) of 6.71, compared to an industry average of 12.10.
Possibly, the most important implication of this judgment is that the corporation can triumph over countries. This has serious implications for further debt restructuring exercises. The IMF could play a crucial role in ensuring that a dispute mechanism system is put in place so that such standoffs are avoided in future.
3 Perfect Value Stocks to Buy Now
How can there be any value stocks when the major indices are trading at all-time highs?
I'm the first to admit that valuations are stretched. In 2009 was easy to find value stocks. Heck, everything was a value back then. But in 2014, it's hard to find stocks that are considered undervalued.
But for those investors interested in value and solid fundamentals, there are still a few hidden gems out there. You just have to dig deeper to find them.
Use the Zacks Rank to Find the Hidden Gems
I screened for companies with a Zacks Rank #1 (Strong Buy) or #2 (Buy) recommendation. These are companies that have rising earnings estimates. Rising earnings estimates usually indicates that analysts believe that there's something good going on with the company in the next 1 to 3 months that warrant a more optimistic view on earnings.
With so many companies complaining about the weather dampening sales or a sluggish consumer, I wanted to find companies that aren't using these excuses. Earnings growth is still a reality at many companies.
I also looked for companies with a forward P/E under 15.
This may not seem that cheap to those of you who routinely seek out value. Some value investors only consider a P/E under 10 to be a bargain. But with the average forward P/E of the S&P 500 at 17, I still consider companies trading anywhere below that to be a bargain compared to the overall market.
Special Sauce
Besides a low P/E, there are also a few other indicators an investor can look for to sniff out value.
I like to look for a low price-to-book (P/B) ratio. A P/B ratio under 3.0 usually indicates value.
And if I can get double digit earnings growth on top of all of these value indicators, even better.
Values DO exist. It's not too late to find a bargain. I found three in the hot sectors of transportation, energy and industrials.
Yes, the shares are trading near all-time highs. But that doesn't mean they aren't cheap.
3 Perfect Value Stocks
1. Trinity Industries, Inc.
2. Canadian Natural Resources
3. Columbus McKinnon
1. Trinity Industries (NYSE:TRN-Free Report)
Trinity Industries manufactures and leases rail cars and inland barges. It saw record first quarter results on strong rail car and barge demand. Its Rail Group had a record backlog of 42,630 units valued at $5.2 billion. The Inland Barge Group also had a healthy backlog with a value of $508 million.
On Apr 29, it raised full year earnings guidance. Analysts expect earnings to grow 59.3% in 2014.
How cheap is it?
Forward P/E = 11.4
Price-to-book ratio = 2.2
Zacks Rank #1 (Strong Buy)
2. Canadian Natural Resources (NYSE:CNQ-Free Report)
Canadian Natural Resources is an independent oil and natural gas explorer and producer headquartered in Calgary. It explores in Western Canada, the North Sea and Offshore West Africa.
In the first quarter, North American E&P crude oil and NGLs production grew by over 5% compared to the prior quarter. It also completed and integrated a recent acquisition.
On May 8, it raised its 2014 annual production guidance, which is what most analysts look at when evaluating an E&P.
How cheap is it?
Forward P/E = 13.5
Price-to-book ratio = 2.1
Zacks Rank #2 (Buy)
3. Columbus McKinnon (Nasdaq:CMCO-Free Report)
Columbus McKinnon makes industrial products such as hoists, actuators, cranes and lifting and rigging tools. In the fiscal fourth quarter revenue rose 11% due to strong demand and higher sales volume.
It completed an installation of a large Rail & Road project in Canada and saw Europe rebound from its lows. Sales in the U.S., which were 57% of total sales in the quarter, rose 7.3%, while sales outside the U.S. jumped 16.3%.
Both U.S. and Eurozone capacity utilization are leading market indicators for Columbus McKinnon. The company's results usually trail these indicators by about 2 months. In both the U.S. and Eurozone, capacity utilization rose year over year as of March with the U.S. jumping to 77.6% from 76.8% in 2013 and the Eurozone hitting 80.1% at the end of March 2014 compared to 77.6% a year ago.
With the global economy slowly recovering, double digit earnings growth of 26% is expected in fiscal 2015.
How cheap is it?
Forward P/E = 13.7
Price-to-book ratio = 1.9
Price-to-sales ratio = 1.0
Zacks Rank #1 (Strong Buy)
[In full disclosure, the author of this article owns shares of TRN.]
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