by Travis Johnson, Stock Gumshoe | August 7, 2007 8:22 pm
This teaser email comes in from Bill Mann at Motley Fool Global Gains … and as with all such reports from the Fool, this one is a bit like reading Tolstoy, by the time you get to the end you can’t quite remember why you started.
But even though his missives are long-winded, Mann has a pretty admirable record in tracking down undervalued international investments — so it’s probably worth finding out what he’s talking about here.
The loooong essay essentially talks about second tier cities in China and India, and how these slightly lower profile Chicago’s and Houston’s (and, going down the scale a touch, Cincinnati, Indianapolis and Birmingham) are going to be the real growth drivers for these countries, not the major cities that we know a bit better, like Mumbai or Shanghai.
Chinese and Indian officials are actively pushing their migration to these smaller cities, to avoid completely overwhelming the major cities and to help make sure that growth is more even and stable in the future.
So, if you agree with this point, that the urbanization of China and India is a major growth driver, and that the impact is going to be most significant in what are now the Tier Two cities, there are a few companies he wants to tease us about who will benefit from that growth.
He teases a few special reports he’s preparing for Global Gains subscribers that together make up what he calls “11 Plays to Profit” …
“3 Micro Caps Ready to Explode on China and India!” (which he doesn’t even give a single clue about, undoubtedly in fear of the mighty Gumshoe’s sleuthing ability) …
“Three ‘Tier Two’ Monsters — Making Money off China and India’s New Money — Reveals the soon-to-be-household name that’s expanding rapidly across China’s interior. (We’ll get to that one in a few minutes.) …
“4 Domestic Power Plays — making BIG money in Asia without leaving home! — Includes the global super brand with a lock on one of China’s fastest growing consumer segments.” Not sure I’ll get to this one, but there are a few clues …
And most importantly, he teases us about one REALLY good investment …
The main report I’m interested in is the big Kahuna — “No. 1 Pick for New Money Now.” Apparently Bill’s trip to Asia had a significant influence on him, because it’s not one of the three stocks he recently teased as his best ideas, but something new from his pan-Asian fact finding journey.
I gotta get someone to send me on one of those.
But anyway, he talks quite a bit about his number one pick — along, thankfully, with quite a few clues.
This is a bank, operating in second tier cities in India.
In Bill’s words: “I sat directly across from the bank’s Head of Finance and looked him in the eye. So I can personally attest to what I’m about to say… These are hardnosed, seven-day-a-week capitalists out to dominate an industry crippled by bureaucratic state-run institutions.”
Doesn’t it just make your little capitalistic heart get all toasty inside?
But he gives some specific clues, too (though we could have found it just based on the above paragraph):
“700 branch offices in 316 different cities”
35% growth year over year (growth in what? Dunno)
Net interest income up 43% a year for the past decade, and 51% last year.
EPS up 30% annually for many years.
“Since 2001, customer accounts have skyrocketed 685%, from 1.4 million to more than 9.5 million!”
So that sounds pretty nice, eh? We’ve looked at some Indian banks before in this delightul Gumshoeing operation, but this one hasn’t come in as a recommendation yet … Bill Mann’s Global Gains thinks that the number one place for new money now is …
HDFC Bank (HDB)
There are really only two big non-state-run Indian banks that US investors can easily by — HDFC and ICICI. ICICI (IBN) gets a bit more attention — I think they have a bit more of an urban presence, and their growth is slightly better and valuation slightly higher last time I checked, but they’re in many ways pretty comparable and will probably both do quite well in the long term — though both are expensive on current earnings … both have performed almost identically this year, with IBN a little bit stronger. IBN was recommended a while back by Nicholas Vardy’s Global Stock Investor, who I’ve heard neither hide nor hair from since.
And for those of you who like microcaps, you’ll be going hungry today — this is a ten billion dollar company. Though, come to think of it, compared to Citibank and Bank of America, that is a microcap … especially if you’re talking about a potential market of nearly a billion people in India. HDB is also about half the size of IBN, according to Yahoo Finance’s numbers.
HDFC has indeed been pushed out of many of the big urban areas by regulators, and they’re apparently looking at this as a positive as they try to sign up all the small city and rural folks for their first bank accounts, mortgages, credit cards, etc. It might work great, and aside from ICICI their competition is indeed a fairly unappealing group of state-supported banks that are, as you might imagine, severely bureaucratic and not necessarily providers of highlight-reel customer service. Whether that means they’ll succeed, I don’t know, but Bill Mann sure thinks so … and he actually met with the management. I suppose it’s possible both that they conned him with their smooth talk, but it’s also possible that they did indeed open up and share with him their strategies honestly in a way that convinced him that they’re on the right path.
Either way, HDFC is Bill Mann’s number one pick for new money now … do with that as you will.
But don’t go away yet! We’ve got another one, the Number One Tier Two Monster.
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