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An Undervalued Market
Sporting 17.3% Yields |
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Published:
November 10, 2008
You think the U.S. stock market is
on sale? U.S. stocks are a bargain
compared to what you would have paid
just a year ago. But valuations of
U.S. companies are still two times
higher than Taiwanese companies. Not
only are Taiwanese stocks a better
bargain, but the market in Taiwan
doles out more than twice the
average yield of the S&P -- and some
stocks, like the one we discuss
below, have yields as high as 17.3%.
The stock market in Taiwan has
fallen -46% over the last year,
making it one of the hardest-hit
developed markets in the world.
Investors are panicking since this
nation relies heavily on exports --
a slowing global economy obviously
isn't a plus for the country of 23
million strong.
But with a performance like this,
you might think this country was
about to go bankrupt...
You couldn't be further from the
truth.
Taiwan actually grew its economy by
+4.3% last quarter, has a per-capita
GDP of roughly $30,000, and is known
the world over as a major exporter
of technology products.
And there are some other details
that make this country paradise for
value investors and Shangri-La for
income seekers right now.
The Most Undervalued Market in
the World
We've brought you stories about
Taiwan before, but it's hard to
imagine a country as attractive to
new investment as it is today. Not
even one year ago, the country's
average P/E ratio soared above 20 --
today it has fallen all the way to
10. Compare that to the United
States where stocks still trade
around 21 times earnings. See the
chart below to get a feeling for
just how historic these valuations
are.
You'd expect a country's market to
be trading at such a low multiple if
it were in dire financial straits.
But the fact is that Taiwan's
long-term picture is about as rosy
as it gets.
Relations with China, which have
been contentious since the 1940s
Chinese Civil War swept the
U.S.-backed Nationalist party to the
small island in the South China Sea,
are beginning to improve.
The election of Ma Ying-jeou as
president of Taiwan last March has
led to an easing of tension between
the nations. In fact, flights
between Taiwan and China have now
resumed after nearly 60 years. As
these two countries continually
improve their ties, the Taiwanese
economy is set to boom. The Chinese
people are hungry for the latest
electronics from Taiwan -- and
Taiwan will be more than happy to
sell them.
This is one reason Taiwan continues
to be among the fastest-growing
developed economies. This year it is
seeing roughly +4% growth -- and the
next two years will see average GDP
growth of +3.5%. Yet when you
compare the current growth rate to
the average P/E of 10, you get a
ratio of about 3. The same
comparison for the U.S. comes in at
a much higher 11.
This is simply baffling. The U.S., a
country that just announced GDP fell
-0.3% last quarter has a richer
valuation than a developed nation
growing at a +4% rate.
That alone is a great reason for
value investors to look toward this
nation of high-rises. But what about
income investors?
A Treat for Income Investors --
7.6% Average Yields
Amid this sell-off, it's easy to
think Taiwanese companies would be
hoarding cash and it wouldn't be a
dividend hot-spot. But the only
thing this fall has done is inflate
yields for new investors.
 Taiwan's
benchmark TAIEX Index now yields an
average of 7.6%.
But that's just an average -- we've
found some stocks yielding 10.1%,
13.7%, even 17.3%.
Which begs the question: How can
they afford to pay out such high
dividends? To be sure, the panicked
sell-off around the globe has led to
increased yields -- we've been
telling you about this phenomenon
for weeks. But there is also a
special clause in Taiwanese tax law
that ensures high payments.
The Taiwanese government imposes a
10% tax on any retained earnings
held by a company for more than a
year. In effect, this "use it or
lose it" policy ensures the nation's
companies will continue showering
investors with dividends.
This is why even Taiwanese tech
companies -- a sector well-known for
stinginess in the U.S. -- can pay
out 10%-plus dividends to investors.
AU Optronics (NYSE: AUO), a major
player in the LCD screen arena, pays
new investors 10.1%; Silconware
Precision Industries (Nasdaq: SPIL),
a company that specializes in
integrated circuit packaging, is
paying 13.7%.
Now, both of these ideas have been
battered, and they still are at
valuations or face challenges that
make them better suited for more
aggressive investors. Our favorite
play has also been hit, but at these
levels, income and value investors
should be taking note.
This company trades on the Nasdaq
and makes display components for
TVs, cell phones, and mobile devices
-- if it has a screen, they likely
had a hand in it. There is no doubt
a slowing global economy weighs on
this company, but this punishment
just doesn't fit the crime: The
stock trades at a P/E of 2.8, but it
still expected to grow +20% annually
over the next five years. On top of
that, the company has zero debt and
cash per share that equals almost
one-third of the share price. And
thanks to the Taiwanese sell-off,
the stock is paying new investors
17.3% today.
There is no telling when Taiwanese
stocks might begin to turn around.
But investors will eventually
recognize the value waiting on this
small island nation, and until then,
you can lock in some of the most
attractive yields on the planet.
If you'd like to learn more about
the opportunities awaiting investors
who look around the globe for
income, you are invited to read Nick
Lanyi's complimentary
High-Yield International
report on the topic. In this special
feature, he'll let you know which
countries are showing average yields
of more than double those found in
the U.S., where to find T-bills that
pay more than 10%, and why exactly
yields are so much higher overseas.
In addition, this report will
tell you the name of the undervalued
Taiwanese stock mentioned above with
a 17.3% yield. To access your
free report,
please visit this link. |
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Get the full story here... |
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