Let the games begin
Yesterday, we looked at four potential investments offered by this year's Olympics host nation, Italy.
I can't say how well Italy's athletes will compete, but the companies didn't do so hot yesterday. We examined two eyewear makers, Luxottica and De Rigo. The former didn't match up well against U.S. competitor Oakley, appearing expensive in comparison and offering a dividend yield only infinitesimally better than its U.S. rival. The latter looked cheap but is due to terminate its ADR program any day now.
We also looked at leather furniture maker Natuzzi, an old Fool favorite that has recently fallen on hard times. Profitless and free cash flow-negative for the past year, its couch is looking a bit worn. Of the four, the best offering appeared to be Benetton. The company trades for a premium multiple to earnings, but offers a superior dividend yield of 3.4%. That's good enough for a bronze medal in my book. Today, we'll continue our hunt and see if Italy can produce a silver- or gold-medal contender from today's batch of competitors.
Get to know a country
Here, then, are today's five Italian specials. Sample at your own risk:
Ducati Motor
Level III ADR
1 ADR = 10 Common Shares
Let's warm up our investing engines with Ducati Motor, a maker of "racing-inspired motorcycles." The company may technically compete with the likes of Harley-Davidson
So let's quickly switch gears and look at a few of Italy's other offerings instead.
Enel
Level II ADR
1 ADR = 5 Common Shares
As compare-and-contrast exercises go, you can't get much better than Ducati and Enel. If Ducati is all speed, Enel is all power. It's a giant of the electric-and-gas utility world, sporting a $43 billion market cap and paying out the kind of dividend yield you'll only find by combining the cash flow prowess of a utility with the cash distributing inclination of a European corporation. With its dividend yield of 9.9%, Enel should attract the attention of anyone interested in income-producing investments. If that level of dividend is sustainable, why, it might even deserve a look-see from the folks at our own Motley Fool Income Investor newsletter.
Eni
Level III ADR
1 ADR = 2 Common Shares
Continuing to think big, we next examine Italy's national oil champion: Eni. With $77.5 billion in annual revenues, Eni looks like a minnow compared with whales like ExxonMobil and BP
Moreover, its 21% operating margins are the envy of the big-oil world, better than Exxon, BP, ConocoPhillips, Total, or Chevron can boast. That supercharged profitability gets passed on to Eni shareholders in the form of a respectable 3.7% dividend.
SanPaolo IMI
Level II ADR
1 ADR = 2 Common Shares
Shifting from big oil to big finance, our next Italian contestant is hometown hero SanPaolo IMI. Based in Torino, this $32 billion provider of banking, asset management, and capital markets services operates more than 3,200 branches throughout Italy, and more than 100 abroad. It is Italy's third-largest bank (behind Banca Intesa and Unicredito), but by objective standards, not a particularly good bank.
Foolish banking expert and Income Investor lead analyst Mathew Emmert counsels Fools to focus their banking investments on institutions that pass three primary tests:
- A return on equity exceeding 20%
- A return on assets exceeding 1.5%
- And a price-to-book ratio of less than 2.0
Suffice it to say that SanPaolo fails each of these tests.
Gentium
Level III ADR
1 ADR = 1 Common Share
At the risk of ending this contest with a whimper rather than a bang, we'll wind up our Tour d'Italia with a biotech micro cap by the name of Gentium. Gentium specializes in producing drugs aimed at combating vascular diseases and vascular problems associated with cancer treatment. But like most small biotechs, its real expertise is burning cash. The company has a little more than $8 million in the bank, half that amount in debt, and is burning cash at the rate of about $11 million per year.
Will Gentium ultimately evolve, thrive, and become the Italian Genentech? I'm not enough of a biotech wizard to evaluate its drugs' prospects. But judging from the numbers alone, if Gentium ever does generate profits for its investors, it will be many, many diluted shares from today.
This concludes our roundup of the easy investing opportunities offered by host nation Italy. And I have to say, today's group looks a whole lot more attractive than yesterday's did. If this were an entirely local contest, I'd have to say that Benetton looks likely to keep its bronze medal. But Eni and Enel are the only real contenders for gold and silver. Their dividends alone leave most U.S. contenders in the powder, and their market dominance within Italy gives each a widely defensible moat that should help ease a U.S. investor's concerns about investing abroad.
Do they deserve a place in your own personal winner's circle? Perhaps -- but don't base your decision on a couple-hundred-word summary of any of these businesses. In foreign lands as in our own, do your own due diligence before making any investment. Your portfolio will thank you for it.
Interested in la dolce dividends? Click here for a free trial to Motley Fool Income Investor, and see how sweet it is to get paid to invest.
Fool contributor Rich Smith does not own shares of any company mentioned above. The Motley Fool's disclosure policy stands alone on the gold medal platform.
