Six Long-Term Buys in our Aggressive Portfolio

Now that Pacific Wealth is closing, I want to leave you with the stocks in our Aggressive Portfolio most suitable for a buy-and-hold strategy, so you can keep a substantial portion of your wealth in the Pacific Basin.

Aggressive holdings are expected to fluctuate more than Conservative holdings, and to have a greater probability of sharp price declines. This has certainly been the case in the difficult markets of the last five months. Nevertheless, for an investment to be worth holding on to, it must have a great deal of long-term potential and relatively little long-term risk. As a result, technology companies should be avoided unless they dominate their sector, and the highly leveraged should likewise be avoided.

Instead, for long-term holdings we look for companies with highly defensible positions that pose little financial risk and where growth over the long-term is most assured. In many ways we are looking for the most conservative members of our Aggressive Portfolio.

Indeed, there is a lot of overlap between the two portfolios; for example, the agribusiness company Wilmar International is in terms of size and solidity a Conservative holding, while Hon Hai’s (OTC: HNHPF) high-tech focus and the Guggenheim China Small-cap Fund’s (NYSE:HAO) significant exposure to China’s volatile stock market bear many of the characteristics of Aggressive holdings. The six Aggressive Portfolio holdings most suited to long-term investment are as follows:

Alliance Global Group Inc. (OTC: ALGGY) Alliance, a largely domestic business based in the fast-growing, stable Philippines, is a real estate, tourism, gaming, food and fast food conglomerate. It owns controlling interests in Emperador brandy, the Philippines’ largest liquor with a 50% market share; Megaworld Corp., the country’s largest real estate developer; Travellers International, the Philippines’ largest hotel chain (which operates casinos); and Golden Arches Development Corp., which is the Philippines’ second-largest fast food chain, with an exclusive McDonalds license.

After reporting that six-month earnings to June 2015 increased 5% on revenues that were up 11%, Alliance Global now trades at only 12 times trailing 12-month earnings and 11 times expected 2016 earnings, with a dividend yield of 1.4%. Each ADR represents 50 shares. Because of its spread of stable businesses and its domestic focus, Alliance Global represents an excellent way to play the rapid growth and stability of the Philippines.

And as I’ve written about often, the Philippines is in a strong position economically.

Energy Development Corp. (OTC: EGDCY) of the Philippines is the world’s largest vertically integrated geothermal power company with 1,164 megawatts in total installed geothermal capacity. EDC, which also operates the 150 megawatt Burgos Wind project, accounts for 9% of Philippine electricity production. The company operates geothermal steam fields in 14 geothermal service contract areas and has 10 wind energy service contracts and two solar energy service contracts. It also has ambitions in solar power, with a 4.2 megawatt facility next to Burgos, and plans for a 30-megawatt expansion immediately and 100 to 150 megawatts of capacity in three or four years.

EDC has used its renewable energy expertise to acquire five concessions in Chile and Peru and is in negotiations in Indonesia. The company will begin preliminary drilling in October, at the expected cost of $70 million, on its Mariposa geothermal concession in Chile, of which EDC will own 70% of the output.

EDC reported recurring net income was down 14% in the first half of 2015, due primarily to reliability problems in the Tongaman geothermal plant, which caused it to go offline. The company described the setback as “significant but temporary.” Revenues rose 10% thanks to contributions from the Burgos wind plant and the Nasulo geothermal plant, both commissioned in the latter months of 2014. EDC trades on 10.7 times trailing earnings and 9.7 times 4-Traders’ estimate of 2016 earnings. Each ADR represents 100 shares, and based on 2015 dividends of $0.45 per ADR, the shares yield 3.7%.

LG Display (NYSE: LPL) of South Korea is the world leader in displays with a 19% market share in small and mid-size LED displays in 2014, ranking neck-and-neck with Samsung. LG is the clear leader in large-scale displays, with a 27% market share. The company’s products are used in all major display markets: televisions, monitors, notebook computers, tablet computers, telephones and now watches (LG is the principal supplier of displays for the Apple watch). LG sells primarily to the manufacturers of the products in which LG displays appear.

LG is also the clear leader in organic LED (“OLED”) displays, a technology that, according to industry studies, will become a $16 billion market by 2020. LG is in the process of negotiating distribution agreements with the major Chinese supply manufacturers to speed the adoption of OLED technology. LG itself manufactures in two production facilities in Korea and one in Guangzhou, China. The company holds significant intellectual property, with 26,518 patents at the end of 2014.

Attractively priced, LG currently trades at 6.1 times trailing fourth-quarter earnings and 7.1 times estimated 2016 earnings. It also offers a modest 2.4% dividend yield. The company has little leverage, with only a 10% debt-equity ratio in March 2015 and over $2 billion of cash and short-term financial assets. LG leads a growing technological sector that is central to today’s lives, selling at an exceptionally attractive rating.

Based and listed in Singapore, Olam International (OTC: OLMIY) is Asia’s largest agri-commodities trader operating in 65 countries, with some upstream diversification into production. It specializes in cocoa, coffee, cashew, rice and cotton and has 23,000 employees. Growing operations are carried out in Africa (palm, coffee and rubber plantations), Indonesia (cocoa), Argentina (peanuts) and forests in the Republic of Congo, among other countries.

Olam’s2014 sales totaled $14.3 billion, with net income excluding one-time expenses of $239 million. Olam’s net income tripled in the second quarter of 2015 to $67.8 million, while revenues fell 16% on lower trade volumes. Olam also announced the sale of a 20% stake to Mitsubishi Corp. in two deals totaling $1.09 billion, at a 29% premium to the current share price.

The deal is expected to increase Olam’s business opportunities in Japan. The company trades at 19 times historic earnings but at only 10.8 times 4-Traders’ estimate of 2016 earnings, with a dividend yield of 3.9%. I like the Asian commodities business because of its favorable growing conditions and proximity to major markets. Olam’s business has also benefited from currency devaluations in countries such as Indonesia, which have made Olam’s products more competitive.

Trend Micro (OTC: TMICY) is a leader in the Internet security business and stands to benefit from its growth, as the Internet becomes more ubiquitous and threats multiply. The business is also becoming more complex because the systems needed to combat those threats must be more multi-faceted and sophisticated.

For consumers, Trend Micro provides anti-virus software. For small businesses, it provides network-related anti-virus software, while for large businesses it provides virus protection and intrusion detection softwares that help protect the business’s own networks and secure its activities on the cloud. Trend Micro typically provides the latter software through a cloud service provider.

Trend Micro is one of the few Internet security companies offering protection against unknown vulnerabilities of new software when it is first introduced. About 43% of Trend Micro’s revenue comes from Japan with 23% from North America, 19% from Europe, 12% from Asia Pacific and 2% from Latin America. While Japan’s sales are divided equally between consumer and business, 80% of sales outside Japan are to enterprise customers.

Trend Micro has $1.6 billion of cash and marketable securities and no debt. Consequently, while its market capitalization is $4.7 billion, its enterprise value is only $3.1 billion. Trend Micro reported sales of $253 million for the second quarter of 2015, up 11%, and net income of $40 million.

Trend Micro’s P/E of 25.7 is elevated, but its cash pile offsets this. The company currently pays a dividend of 97 cents per ADR, yielding 2.8%.

Wilmar International (OTC: WLMIY) is Asia’s largest agribusiness company and the global leader in processing and merchandising palm and laurics oils. With more than 450 manufacturing plants in 18 countries, Wilmar is one of the largest palm plantation owners in Indonesia and Malaysia.

It is also the largest oilseed crusher, edible-oils refiner and specialty fats and oleochemicals manufacturer in China, as well as being one of the largest flour and rice millers. The company, therefore, benefits both from growth in Indonesian agribusiness exports and growth in Chinese agricultural products imports. Wilmar is also the largest raw-sugar producer and refiner in Australia and has substantial and rapidly growing operations in India and Africa.

Wilmar reported second quarter earnings in 2015 were up 18%, although revenue declined 12% as a result of lower commodity prices. For the half-year, net income increased 33% on a 10% decline in revenues. Although the tropical-oils business was weak and the sugar business had a loss, oilseeds profits more than doubled, and other businesses were also strong. Wilmar’s share price weakened recently; it currently has a historic P/E of 9.1 times earnings, a prospective 2016 P/E of 8.7 times based on 4-Traders estimated earnings, and a prospective dividend yield of 3.1%.With its premier position in Asian agribusiness, Wilmar should be a core holding.

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