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Growth Pays

Neil George
Neil George
Neil George.com
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Investing for growth isn't just about making a bet on a stock going up--instead it's about buying solid companies in the right markets that focus on their shareholders.

When you hear the pitch for investing for growth, the one word guaranteed to be in there is Asia.

It's used by brokers peddling Asian mutual funds and CEOs selling resources or exporting stuff back to the US. And we're all easy marks for the message.

Granted, there are a billion-plus people eager to make something of their local economies.

The trouble is that if you've been around the block a few times or know these markets firsthand, you're aware that even if there are plenty of Asian eager beavers, nothing is ever a sure thing.

Recall the late 1990s, when from Beijing to Bangkok there was plenty of red ink on investors' statements. While growth is the word on the street, there are cracks, just like on many of those gleaming towers that were thrown up these past few years.

From potentially slowed demand for exports to the US and Europe to local growth pains, the region isn't without challenges to keep its growth train on track.

But that doesn't mean you avoid the region; simply use the same dictums we use in the US: Don't take promises and don't trust prognostications on faith.

Instead, focus on core industries set to succeed even in tougher times and companies focused on shareholders with solid revenue and steady-to-improving margins and dividends. Dividends give us the staying power and demonstrate that companies paying are likely to be around for a long time, especially in challenging times.


Gathered To Grow

There are plenty of companies that meet our criteria, including members of our model portfolios. One --Matthews Growth & Income Fund, which hopefully you purchased when you could and are adding to along the way -- is closed.

However, if you missed Matthews Growth & Income, check out Matthews Asia Pacific Tiger; it's an excellent substitute.

We've gathered a prime collection of individual companies that fit the model of growth and dividends that are set to work during the ups and downs to come.

Buy the bunch--for prudent diversification—or at least buy a few. Some trade on the NYSE, while others trade over-the-counter (OTC). The OTC ones take a bit more work, but they're worth the extra effort.

Note: Many high-quality companies will have lower average stock prices in the Asian markets.

We start with Korea Electric Power, the power behind a major engine of global growth. Electronics, steel, cars and tankers, Korea is one of the biggies. Its size and strength show in revenue growth as its gains climb and margins improve.

Rate gains also continue--regulators are recognizing the need to keep the company humming, which ensures sustained profits and payouts. Korea Electric trades at a big discount of 25 percent of revenues and pays a nice dividend exceeding 4 percent. Korea Electric is a buy up to 18.

Next is China's domestic petrol player, PetroChina. The company has been profiting from buoyant oil prices, and it's also integrated in refining and distribution in the local market.

Yes, lower crude prices are coming; but PetroChina should be a beneficiary--it still benefits on downstream businesses with improved margins on lower input costs. With captive consumers in petrol and natural gas and a payout running at 5 percent, which represents only 45 percent of cash flows, PetroChina is a nice buy up to 65.

Banking has its challenges with a bump up in shorter-term interest rates for dollars. However, the old Hong Kong Shanghai Banking Corp--now HSBC--is set above its lesser peers.

Others might scramble to gather deposits to offset higher funding costs, but HSBC has solid deposit growth, ensuring stable funding for its expanding loan portfolio. And it runs its assets and liabilities with an impressive efficiency rate that makes its peers envious. Buy HSBC with its 4 percent dividend up to 85.


Economic Essentials

Next are core essential services for the region. First is Hong Kong Electric, a heavy supplier for Asian manufacturing, shipping and financials. It's also one company that's helped behind the scenes by the leadership of Li Ka-Shing of Growth Portfolio member, Hutchison Whampoa.

Hong Kong Electric is a Steady Eddie local with a solid core business. It also promises strong growth both locally and in its burgeoning regional markets. Its 5 percent-plus dividend is safe, given the modest payout rate, and makes Hong Kong Electric a buy up to 85.

Our first telecom favorite is SK Telecom in Seoul. It's part of the former SK Chaebol, which has continued to expand voice, data and wireless revenues during the past several years. Revenue growth and margins are expanding at double-digit percentages. And with big reinvestment in newer technologies, the payout ratio is still a meager 20 percent, despite its 6 percent dividend.

Its Bangkok peer was previously headed by the current Thailand president, Thaksin Shinawatra. We've been following Advance Information Services for years and have witnessed expansion and solid government relations, which are critical to licensing and limiting potential competitors.

With Shinawatra and his pals in power, few challengers are ready to take on these companies. Buy SK up to 2.30 and Advance with its comparative dividend of 5 percent up to 3.20.


Basic Biggies

Industrials are at the core of the Asian economies. They start with building the essentials of the local markets. Dongbu Corp is the leader in Seoul as well as beyond Korea's borders.

Think of it as a combination of Halliburton, Fluor and others. From infrastructure projects to factories and distribution centers, Dongbu will have on hand what a company needs to build. And with a keen shareholder focus, Dongbu keeps paying an 8 percent dividend, and is a buy up to 12.50.

Then there's steel, the backbone for the region. We like Posco, but there's a great competitor we've found in China--Maanshan Steel. Not only is it continuing to benefit from Chinese and regional demand, but its dividend exceeds 7 percent, even after its reinvestment for expansion. Buy Maanshan as a great total return play up to 1.

Consuming a lot of that steel is the growth industry that's taking more business from Japan and Europe--automobiles. Sure Hyundai is solid, but we also like the broader play in the parts business.

This is where Duck Yang in Ulsan, Korea, comes in. It trades at huge discounts to revenues and assets like other Korea companies, and it continues to pick up business in supplying manufacturers, enabling assembly of cars. Packing a whopping 9 percent rate, Duck Yang a buy up to 12.


Sell and Ship

Companies that provide textiles and defensive food and beverages are in demand day in and day out. Windsor Industrial keeps churning out clothing at increasingly competitive prices, which is what folks around the world demand, even at the expense of their neighbors' jobs. With free trade helping Windsor move more goods and a dividend that keeps getting paid at 4 percent, buy Windsor up to 4.

On the beverage and food front, think of the impressive reach Coca-Cola has. Then think about the local staple–soy--and put them together. What do you have? Vitasoy, of course.

The leading soy and soy-related food and beverage producer in the world, Vitasoy is another solid company that will find ways to thrive and expand its global footprint for years to come. Buy Vitasoy up to 3 and collect the 4 percent dividend along the way.

Moving goods around the locals and beyond is the other core need that will only become bigger in Asia. We have Hutchison Whampoa for the global shipping, but around the region, more locals in Thailand and other countries depend on Thoresen Thai.

The shipping and freight handling company has been doubling its business. And even if conditions slow—it's still pig heaven for the Bangkok business. Who can resist the big dividend either--it yields more than 11 percent. Thoresen Thai is a compelling buy up to 2.

Neil George will be available to take your questions until Thursday, April 28. Please use the form below to submit your questions.

 
 
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