Sherwin Williams: First step of a housing recovery

When home maintenance is done, the first major improvement to the cosmetic appeal is a can of paint. Thus with the bottoming of housing starts and a spike in remodeling permits (see graph below), it may be time to buy a paint company.

Sherwin Williams is the top paint supplier in the US. The sales at their paint stores are growing at a 7.8% rate and margins are expanding. The dividend is stable and should have room for growth with new sales growth.

The author will buy Sherwin Williams at $87/share.

Turkcell is still a buy: Doubling down

Turkcell fundamentals and balance sheet are even better than before, and the price even cheaper. Turkcell has seen significant growth in Central Asia and Eastern Europe. Due to a currency collapse, the Belarus subsidiary has been written down to a negligible value. Growth of profits from smart phones has been increasing on track to bring new growth. All of these items make Turkcell more and more attractive.

The Achillies Heel of TKC is the foreign shareholder versus domestic shareholder power struggle that has been ongoing since TeliaSonara bought a controlling share of the company in 2005. Collateral damage to shareholder occurred in 2011 with the foregoing of the dividend payment due to the inability to agree between the two major shareholder factions.

Who knows when these issues will resolve? But the deep value of Turkcell makes this investment worth the wait. Thus the author is doubling down on the Turkcell investment at $11.78.

RusHydro: Consolidating assets

RusHydro is rolling up power generating assets in Russia. It issued shares at one ruble to RAO ES of East Group for company shares worth 1.65 Rubles.

"On June 30, 2011, the AGM of RusHydro passed a resolution to increase RusHydro's authorized capital by issuing 89,000,000,000 additional ordinary shares with a par value of RUR 1 each. Monetary value of the property transferred to pay for additional shares of RusHydro was determined by an independent appraiser- LLC Institute for Enterprise Issues (the City of Saint Petersburg). In addition, JPMorgan and Morgan Stanley presented their fairness opinions to the Board. The valuations as well as the offering price of shares of in the amount of RUR 1.65 per share were approved by the Board of Directors of RusHydro."

Consolidation provides lots of opportunity for economies of scale for these power generation assets.

"Thus, the first stage of the placement is now complete. As a result, RusHydro consolidated a number of energy assets and became the controlling shareholder of the RAO ES of the East Group and the dominant player in the power sector of the Far East of Russia. This acquisition is fully inline with the development strategy of RusHydro to consolidate undervalued generating assets in Russia to create additional shareholder value through realization of synergies with existing generating, retail, engineering and R&D assets of RusHydro Group.

RusHydro is developing into the preeminent power generation company of Russia with the consolidation of the Far East assets.

"The strategy of RusHydro on development of the Far Eastern power sector shall include substitution of economically inefficient thermal plants with efficient low-cost generation, conclusion of bilateral power-purchasing agreements with consumers both for existing capacities and generation assets under construction, realization of opportunities of electricity export to neighboring countries and carrying out of investment projects using instruments of private-public partnerships and project financing."

Russia Long: Stability obscured by political troubles

Russia is doing well while Europe suffers. Unemployment has dropped to 6.3% from horrible levels in the previous decade. Inflation is moderating. As long as the oil and gas prices hold up, Russia will continue to maintain a positive current account. Emerging Market Musing notes that Russia foreign currency denominated debt is highly manageable. Fiscal debt is less than 20% of GDP. Russia is currently growing faster than Brazil.

Finally all emerging market investments must be tempered by possible currency gyrations. The ruble is currently at a two year high.

Currently markets are jittery because of recent protests of Putin. But with economic growth at 5% annual rate, I doubt too many waves will be made.

As mentioned before, the authors favorite Russian stock is RusHydro (RSHYY.PK), already owned by the author.

The author has already purchased RSX at $26.87.

Buy Indonesia: Lots of momentum

Indonesia has tons of demographic momentum and development in progress. As Emerging Market Musing notes, Indonesia is no ugly duckling and holds lots of positive indicators for sustained growth.

This blog is long Indonesia by buying IDX at $27.2.

Following Buffett: BAC preferred shares

Bank of America is currently facing serious regulatory scrutiny, and therefore the company is selling assets to prove it can make capital ratios under Basel 3 standards.

But the overall solvency of the bank looks intact. Warren Buffett recently purchased cumulative preferred shares of BAC at 6%. While such seniority is not available to the author, this newsletter will purchase BAC H series preferred shares at $22.63 (par $25 / current yield 8.8%).

RusHydro : Tapping Russia's growth

When looking for an emerging markets stock, utilities reflect the economic health of the country with less volatility than media, tech, commodities, or financials. The Russian index is dominated currently by mining or metals companies. In order to support both industries, the power infrastructure must be developed. This is what led the author to RusHydro.

RusHydro is the worlds second largest hydropower generator, and the largest successor of the former Russian monopoly broken up in 1993. The company was recently privatized by the Russian government (which still owns over 50% of the company) and will complete the privatization of all entities over the next few years.

The company is currently enjoying high paced growth of revenues and earnings. RusHydro has plants all over Russia, and supports many of the fast growing mining interests power needs. But in the future RusHydro also has potential to export it's energy product to China via it's Siberian interests.

"Sayano-Shushenskaya is the fourth-largest hydropower plant in the world by average power generation, with an effective capacity of 3.5 gigawatts and installed capacity of about 6.7 gigawatts. It accounts for roughly a quarter of RusHydro's total capacity, and damages could cost the company about $350 million, analysts estimate."

As recently as 2009 RusHydro faced a devestating setback when the Sayano-Shushenskaya hydroplant blew up and destroyed 9 of the 10 turbines of the facility.

"OAO Power Machines, which made Sayano-Shushenakaya’s turbines, said it’s ready to make at least six units for the station in 2011. It wasn’t asked to service the turbines since 1993 after installing the first and second units in 1978 and 1979, the Moscow-based company said in an e-mailed statement. "

Overall there is tremendous long term upside to RusHydro and major investment banks are taking notice.

"ADRs of OAO RusHydro, Russia’s largest renewable energy producer, jumped 3.4 percent to $3.97, a three-week high, after JPMorgan Chase & Co. reiterated its “overweight” recommendation on the stock while cutting the price target on its Moscow-traded shares by 30 percent to 1.54 rubles. RusHydro’s Micex shares gained 2 percent to 1.22 rubles, or 4 cents. One ADR equals 100 ordinary shares."

The author purchased RSHYY.PK ADRs at $3.42