Braskem (BAK): Reasonable valuation, fairly steady price appreciation and handsome dividend

By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 6/30/11 Sign up for free Cabot Wealth Advisory e-newsletter

Markets have shown some strength in the past week, raising hopes that we may have put in a bottom, and that the current correction may be winding down.

But remember the old saying, “If you think it’s a bottom you’re too early. If you know it’s a bottom, you’re too late.” We don’t try to call bottoms, preferring to use our market-trailing timing indicators to tell us clearly when we’re in a new uptrend. But it hasn’t happened yet.

So I have a stock today that’s not the fastest horse in the race, but makes up for it with reasonable valuation, fairly steady price appreciation and a handsome dividend.

The stock is Braskem (BAK), a Brazilian chemical manufacturer that makes, sells, imports and exports chemicals and petrochemicals. Braskem is a mid-sized company (market cap is $11.7 billion) that gets 65% of its revenue from Brazil, 13% from the U.S. and the rest from South America and Europe. Its chemicals are used in consumer and industrial applications, and revenue growth has averaged over 80% per quarter for the last five quarters. Earnings growth has been inconsistent, as Brazil’s economy has faced some challenges in the past couple of years. So the 870% jump in Q1 earnings per share, while exhilarating, isn’t typical.

BAK has a couple of flaws that keep me from recommending it for Cabot China & Emerging Markets Report. First, it’s a relatively thinly traded stock, with just 266,000 shares changing hands on the average day. That’s below my usual liquidity requirements.

But with a P/E ratio of just 12, a dividend with some real muscle (forward annual dividend rate is 3.6%) and excellent prospects for Latin American growth, Braskem looks like an attractive defensive play for a tough market environment. The stock has bounced nicely from its June correction that pulled BAK from 32 to 27. It’s now sitting just below 30, and may rest there for a while.

Editor’s Note: Click here to learn more about other top emerging markets stocks recommended by Cabot China & Emerging Markets Report, which was the #1 ranked newsletter for five-year performance in 2009 and 2010 with a total return of 174%. Don’t miss another five years of monster growth! Get started today.

 


Paul GoodwinPaul Goodwin
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report

A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.

Company Details

Braskem S.A. (BAK)
Rua Eteno 1561
Polo Petroquimico de Camacari
Camacari, Brazil 42810-000
55 71 3413 1897
http://www.braskem.com.br
Index Membership: N/A
Sector: Basic Materials
Industry: Specialty Chemicals
Full Time Employees: N/A