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

Bancolombia is a proxy for growth in Colombia

The demographics, geopolitical, and internal political trends of Colombia are very favorable. Thus I am looking to invest in Bancolombia as a proxy for capturing growth in that country. That said, there is a stock market crisis on the horizon and I believe everything will be on sale when the market panics.

The author is entering an order to buy Bancolombia at $43/share.

The following article quote sums up the opportunity.

Bancolombia gets a lot of Kuczma's attention. The 945-branch, $42 billion-in-assets bank has a leading 21% share of Colombia's loan market, and its stock, at 65, is up nearly 5% so far this year. It also sports a 2.2% dividend yield.

The shares have benefited from improving investor attitudes toward Colombia. In March, Standard & Poor's restored the investment-grade rating of Colombia's sovereign debt, removed in 1999 as the country descended into chaos caused by leftist guerrillas. A decade and $7 billion later—mostly in military aid from the U.S.—the government's stronger hand and the global commodities boom have given the economy new life. Bancolombia's Medellin home might still conjure images of drug-dealing mayhem stirred by the notorious Pablo Escobar, but he died 18 years ago. Although violence hasn't disappeared, murders and kidnappings are down 90% from their peak a decade ago.

For years a pariah, Colombia now attracts a flood of international tourists and foreign direct investment, which at $7 billion through June, was up almost 80% on the year. Oil production is expected to reach one million barrels per day by year end, putting Colombia in the major leagues of global crude producers. The country is also enjoying a windfall from record coffee prices. Less known is that Colombia has become the world's fourth-largest coal exporter.

BRFS: Merger approved - Full steam ahead

The BRFS merger was approved with concessions.

Overall, only 13% of the merged company will be impacted by the concessions.

Full steam ahead.

"BRASILIA, July 13 (Reuters) - Brazilian antitrust regulators gave their support on Wednesday to a deal that saves the merger that created processed foods company Brasil Foods.

Antitrust watchdog Cade endorsed a plan by which Brasil Foods SA (BRFS3.SA)(BRFS.N) will sell 80 percent of flagship brand Perdigao's production capacity and halts the sale of some of its products for between three and five years.

The agreement averts a forced breakup of Brasil Foods, the Sao Paulo-based processed foods giant spawned from the 2009 takeover of debt-ridden Sadia by smaller rival Perdigao. Cade had threatened to derail the merger, citing Brasil Foods' dominance in several markets."

Brasil Foods : Suffering from turbulence

Brasil Foods is currently facing two major issues. The first is a rejection of the merger creating the company. The second is the ban of importing of Brazilian chicken into Russia. BRFS currently provids 40% of the chicken imported into Russia, and has a large presence in 40 other markets across the world.

Brasil Foods is currently facing regulator objection to the merger to create the larger company from the combination of Perdigao SA and Sadia SA. Apparently the Brazilian anti-trust regulator has rejected the merger for fear of price fixing in the domestic market do the potential dominance of the new firm on the basis of market share.

But the merger, arranged when Sadia had huge currency derivative contracts blow up on them for a $1B loss, was financed by the Brazilian government. So the same government that put up the money for the merger is now rejecting the combination. There are lots of variables on the motivation of the government, but what is obvious is that this merger is in line with the directive of the Brazilian government to create "national champions".

The regulatory finding is ... a rebuke to Brazil's strategy of using tax-payer money to form "national champion companies" that it hopes will project the country's rising economic power around the globe. Under an explicit strategy to bulk up Brazilian companies for global competition, Brazil's state development bank, BNDES, provided major financing to back the merger.

In fact, JBS, BRFS' main competitor, completed a similar deal last year between JBS SA and Bertin SA to create the world's biggest exporter of beef. The horse has left the barn, why try to close the gate now?

The author believes some compromise will be reached and the merger will go through with various concessions. It would be too painful to keep these companies after so much has been invested.

Regarding the Russian ban, a temporary affair. Russia has, without warning, banned Brazilian meat exports for periods of time on four different occasions in the last ten years. Each time, it has been proven that the "justification" for the ban was without merit. The author feels this will also be the case on this occasion.

The author still long BRFS.

Botox Refresh

Every time I see a "Real Housewives" episode, I see the future of beauty care and it starts with Botox. I will underscore the attractiveness of Allergan based on the following review.

First of all, Allergan will be able to avoid the dreaded patent cliff for Pharma companies because of the many different indications found for Botox.

"A huge part of Allergan's patent-cliff immunity is its blockbuster Botox, which has helped the company evade the patent problems facing others in the industry in two ways: First, Allergan has continued to discover new applications for it. "Really, Botox is a Russian doll," says Allergan CEO David Pyott, because Allergan keeps discovering new uses stacked inside the original treatment."

Second, Botox is a biologic, rather than small molecule therapy, and thus it is very hard for competitors to replicate without violating their patent defenses.

Third, the newest indication for Botox, prevention of chronic migranes, is the first therapy for prevention of the condition. This is a huge potential market that could lead to an additional $500m in sales for the product. Allergan also makes Latisse, an eyelash extending drug estimated to reach $500m in sales.

Essentially what distingishes Allergan is their innovation in biotech for cosmetic enhancement with mild medical applications. Allergan also has opthamology products and obesity products like the Lap Band. But those areas have not proved as profitable as the biotech area.

Overall, there is tremendous upside to Allergan. As a friend of mine Shawn said tongue in cheek, "It is the Intel of the 21st century". I am sure the "Real Housewives" would agree.

The author changed his previous order and bought AGN at $80.46.