The Indian Stock Market Is Loaded With Fantastic Investments
By Tom Dyson
September 17, 2008
"There's been a quantum change," said the president...
I'm writing to you from Bangalore, India. Yesterday, Steve Sjuggerud, Brian Hunt, and I visited an outsourcing company. First, the president talked about the business. Then we took a look around the offices...
Labor is expensive in America. Labor is cheap in India. So American companies fire their American workers and move their offices to India. Indian workers speak English. They're well educated. So the quality of the work is the same. American companies can reduce costs by 75%. And Indian outsourcing companies make large profits.
As long as you can manage the work over the telephone or via e-mail, you can outsource almost any job to India. The company we visited provides services to publishing companies in Europe and America. They prepare books for publishing. They copyedit the text. They lay out the books on the page. They turn paper print into digital print. And they do dozens of other small publishing back-office tasks.
Unlike the banking and call-center businesses, the publishing business hasn't fallen in love with Indian outsourcing yet. So far, they've only outsourced their most basic tasks. But the president of the company says the economic slowdown is hurting his clients, and now they've decided to outsource more important jobs. These new assignments are going to flood this Indian company with work.
The company is the largest publishing outsourcer in India. Right now, it generates about $5 million a year in profits. You can buy this company today in the stock market for $29 million.
On Monday, we visited another company. This company processes sugarcane into raw sugar. It has a market cap of $445 million... and cash in the bank of $110 million. And its sugar business will generate around $40 million a year in profits.
Not bad, right? That's a 12% return on investment.
Here's the thing: When you buy this company, you also get a stake in a fertilizer company worth $360 million. You get a stake in a real estate project worth $25 million. You get a power business that generates $27 million a year in profits.
In other words, this business is an absolute bargain. Or as Steve put it, this stock is "free money."
A hedge fund – Atyant Capital – is introducing us to these companies so we can see how cheap the stocks are here in India. India has been a darling of international investors for the past five years. I've never considered investing in India because I figured the stocks here were too expensive.
I asked the Atyant Capital guys about this. They told me 6,000 companies trade on the Indian stock market... but only 100 of them have analyst coverage. And only the largest Indian companies receive any international exposure. So when the money pours into India, the major stocks absorb all the capital and their valuations go through the roof. Meanwhile, thousands of small and mid-size stocks trade at valuations that would make Warren Buffett shake with greed. These are the stocks the guys at Atyant Capital have been showing us...
India is a fantastic investment opportunity. It has the oldest stock market in Asia, it has strong property rights and ownership laws, companies take care of their shareholders... and as long as you steer clear of the largest Indian companies, you'll find hundreds of quality companies trading at unbelievable bargains.
Good investing,
Tom
Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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