These two stocks don't share a sector or a growth model, but both are well positioned to score big in coming months and years, writes Jack Adamo of Jack Adamo's InsidersPlus.

One of the world markets that is doing well is the Philippines. The whole Pacific Rim is feeling the positive China effect—except China, ironically, although it may get back in step sometime this year.

I’ve long known that the Philippines attract capital as a source of inexpensive labor, but there are few stocks from the region that are buyable in America. Thankfully, one very good one is Philippine Long Distance Telephone (PHI).

PHI is a full service phone company that has everything you’d expect: land lines; cell phones; wired and wireless Internet, etc. As of December 31, it had 49 million customers.

The company has a good balance sheet, with earnings covering interest payments more than seven times and cash flow consistently much higher than earnings. That is mostly due to depreciation expense, which is higher than actual cash-replacement costs for the depreciated assets, and amortization expense, which is a non-cash expense that measures the declining value of certain non-tangible assets.

The stock is up more than eightfold in the last ten years. Though that rate has slowed significantly, it is still up 12.8% annually, compounded for the last five years. Not too shabby.

Dividends have grown in each of the last nine years, and are up a total of 62% in the last five years. As with most foreign companies, dividends vary year to year, but the shares are yielding 7.2% based on the average of the last three years, and 7.8% based on 2011’s payout.

The payout ratio is high, but with consistent, strong cash flow and comfortable debt servicing, it does not need much capital to grow. Issuance of stock, even including stock option compensation, has been very small.

The foreign accounting doesn’t state the actual number of shares issued (it just gives the dollar amount), but by my calculations they averaged less than 205,000 shares over the last three years, out of a total of more than 186 million shares outstanding.

The stock’s current P/E is 13, but earnings are expected to slip a bit next year, so it’s 14 based on forward earnings. I’ll take it.

Growth may slow, especially if China takes time to recover, but even if we get low digit earnings growth over the long term, we will probably get help in the form of currency translations, as the US Dollar continues to weaken against Asian currencies. Buy Philippine Long Distance Telephone up to $68.50.

Kinross Gold Corporation (KGC)

Gold may not tarnish, but gold stocks do. In fact, it seems they tarnish more than most stocks when they have problems.

Kinross is one such company. It has had a couple of bad quarters recently that call into question management’s ability to get the job done.

Between 2002 and 2008, the stock soared ninefold, matching its peers in the industry, but since then it has fallen more than 60%. The latest boondoggle was Kinross recording a $2.94 billion “non-cash” charge for the company's Tasiast project in Mauritania, leading to a loss for the year.

On the flip side, however: on an operational basis, 2011 was the best performance in the company's history. Despite its stumbles, it produced 2.6 million gold-equivalent ounces, growing revenue 31% to $3.94 billion.

Furthermore, in the face of rising costs for fuel (substantial in mining), cash margins grew 32% to $906 per ounce sold. “Cash” in this instance means excluding corporate costs. It’s a legitimate measure, though it’s the bottom line that counts in the end.

Given these results, it seems to me that Kinross simply bit off more than it could chew with some of its recent acquisitions. It’s cranking out a lot of gold in some places, but blowing it in others. That conclusion aligns with the company’s decision to scale back some operations, cutting back on plans at specific mines for the time being. I think it’s a wise decision that should pay dividends later.

Which reminds me: the company’s cash flow is excellent (remember, the write-off doesn’t effect current cash, just past investment), so Kinross raised its dividend 33%. It only comes to about 1.5% annualized...but it’s cash coming in.

The real reason to buy Kinross comes down to something else, however. After all the recent trouble, write-offs, etc., the company’s proven and probable reserves are being valued by the market at less than $130 an ounce.

“Proven and probable” is a legally prescribed definition. It means the gold can be economically mined, though it doesn’t specify at what margin. But at that price, there’s likely to be a lot of room for profits.

If the company doesn’t get its act together, I can see a bigger company like Barrick (ABX), Newmont (NEM), or Goldcorp (GG) scooping it up. It’s small enough (at $12 billion) to be edible, but large enough to add meaningfully to an acquirer’s girth. Buy Kinross Gold Corporation up to $12.

Subscribe to Jack Adamo's Insiders Plus here...

Related Reading:

A Golden Buying Opportunity

Precious Metals Are Looking Strong

The Dividend Sweet Spot

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!