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Charles Brandes is the chairman of Brandes Investment Partners, which he founded in 1974. He is bullish on US equities especially in the telecommunications and pharmaceuticals industries. He is also of the view that US banks have been able to position themselves well for growth through accruing capital and clearing their loan portfolios of that bad debt that saw the triggering of the global financial crisis. In this article I will analyze five recent stock picks by Brandes to determine whether they have solid fundamentals and will continue to grow in value.

PepsiCo Inc (NYSE:PEP)

PepsiCo Inc has a market cap of $99.81 billion with a price to earnings ratio of 16. Its 52 week trading range has been between $58.50 and $71.89, and it is currently trading at around $64. It reported third quarter 2011 earnings of $17.58 billion, an increase from second quarter earnings of $16.83 billion. Third quarter net income was $2 billion, an increase from second quarter earnings of $1.89 billion. It has quarterly revenue growth of 13.3%, a return on equity 29.03% and pays a dividend with a yield of 3.3%.

One of PepsiCo’s competitors is The Coca Cola Company (NYSE:KO), which has a market cap of $151.85 billion and is currently trading at around $67, with a price to earnings ratio of 12.29. It has quarterly revenue growth of 45.40%, a return on equity of 11.19% and pays a dividend with a yield of 2.90%. This data indicates that PepsiCo is being out performed by Coca Cola.

Brandes holds 3,317,486 shares of PepsiCo, buying the entire holding in third quarter 2011. The average purchase price per share was $64.18. Based upon the last trading price of $63.66, he has made a return of 0.81%.

PepsiCo’s cash position has improved in the last quarter. Its balance sheet showed $3.08 billion in cash for the third quarter 2011, an increase from $2.91 billion cash in the second quarter. The net tangible assets have decreased to -$10.44 billion in the third quarter, from -$10.26 billion in the second quarter. Its quarterly revenue growth of 13.30%, versus an industry average of 14.30%, and a return on equity of 29.03%, versus an industry average of 27%, indicates that it is being outperformed by many of its competitors.

The earnings outlook for the beverages and soft drinks industry is relatively poor due to the difficult market conditions caused by the poor economic climate, continuing high unemployment and negative consumer sentiment, all of which have had a significant impact on consumer discretionary spending. This has seen a drop in demand for soft drinks and other beverages produced by the industry. However, an improvement in the global economic outlook should see a rise in consumption.

When PepsiCo’s increased net income, solid performance indicators and stronger balance sheet are taken into account I believe the company is a solid investment opportunity, especially when its attractive dividend yield is also taken into account. On this basis I can understand Brandes’ decision to invest in the company and I rate PepsiCo as a buy.

News Corp (NASDAQ:NWSA)

News Corp has a market cap of $43.39 billion with a price to earnings ratio of 16.89. Its 52 week trading range is $13.38 to $18.35, and at the time of writing it is trading at around $16.50. It reported third quarter 2011 earnings of $7.96 billion, a decrease from second quarter earnings of $8.96 billion. Third quarter net income was reported as $738 million, an increase from the second quarter net income of $683 million. It has quarterly revenue growth of 7.2%, a return on equity of 11.28% and pays a dividend with a yield of 1.2%.

One of News Corp’s competitors is Time Warner Inc (NYSE:TWX), which has a market cap of $34.62 billion and is trading at around $35, with a price to earnings ratio of 13.15. It has quarterly revenue growth of 10.8%, a return on equity of 8.96% and pays a dividend of 2.8%. Based on these indicators Time Warner is outperforming News Corp.

Charles Brandesholds 11,952,430 shares of News Corp, buying the entire holding in the third quarter 2011. The average purchase price per share was $16.21. Based upon the last trading price of $16.54, he has made a return of 2.04%.

News Corp’s cash position has worsened in the last quarter. The balance sheet showed $11.43 billion in cash for the third quarter, a decrease from $12.68 billion cash in the second quarter. The net tangible assets have decreased to $4.76 billion in the third quarter, from $6.22 billion in the second quarter. Its quarterly revenue growth of 7.2%, versus an industry average of 13.3%, and a return on equity of 11.28%, versus an industry average of 7.3%, indicates that it is underperforming many of its competitors.

The earnings outlook for the diversified entertainment industry is currently poor due to the depressed economy and negative consumer sentiment. This has had a significant effect on advertising revenues as other businesses seek to cut costs to maintain profitability.

However, even in this difficult operating environment News Corporation has generated increased earnings and has solid performance indicators. On this basis, despite the decrease in balance sheet cash, I agree with Brandes’ investment decision and rate News Corporation as a buy.

Itau Unibanco Holding S.A. (NYSE:ITUB)

Itau Unibanco has a market cap of 80.05 billion with a price to earnings ratio of 10.17. Its 52 week trading range has been $14.47 to $24.77, and it is currently trading at around $16.50. Third quarter 2011 earnings of $10.19 billion were reported, a decrease from second quarter earnings of $12.44 billion. Third quarter net income was $3.81 billion, an increase from second quarter net income of $3.60 billion. It has quarterly revenue growth of -12.6%, a return on equity of 23.91% and pays a dividend with a yield of 0.5%.

One of Itau Unibanco’s closest competitors is Banco Bradesco (NYSE:BBD), which has a market cap of $62.88 billion and is trading at around $17, with a price to earnings ratio of 10.31. It has quarterly revenue growth of -14.4% and a return on equity of 22.59%. Based on this data Itau Unibanco is out performing Banco Bradesco.

Brandesholds 612,677 shares of Itau Unibanco, buying the entire holding in the third quarter 2011. The average purchase price per share was $18.46. Based upon the last trading price of $16.33, he has made a return of -11.54%.

Itau Unibanco’s cash position has increased in the last quarter. The balance sheet showed $108.92 billion in cash for the third quarter 2011 an increase from $107.02 billion in the second quarter. Its quarterly revenue growth of -12.60%, versus an industry average of 39.30%, and a return on equity of 23.91%, versus an industry average of 7.80%, indicates that it has worse quarterly revenue growth but a better return on equity than many of its competitors.

The earnings potential of companies generating revenue from the banking sector remains poor in the short term due to tight credit markets and the poor economic climate. However, it appears that most South American banks have weathered the global financial crisis and the poor global economy, far better than many other global banks. This can be partly attributed to the lack of maturity in the banking and finance industry in South America, which saw many banks avoid substantial exposure to investments in collateralized debt instruments (CDIs) and poor quality loans.

Despite Itau Unibanco’s decreased earnings it has increased its net income in the third quarter 2011 in a difficult operating environment. In addition, it has strengthened its balance sheet by increasing its cash holdings. When this is considered in conjunction with its solid return on equity, Brandes decision to invest in the company is understandable. However, I believe there are better investment opportunities in the industry, which have better growth prospects than Itau Unibanco and therefore I rate the company as a hold.

The Dow Chemical Company (NYSE:DOW)

Dow Chemical’s has a market cap of $32.67 billion, and is currently trading at around $26, with a price to earnings ratio of 11.32. Its 52 week trading range is $20.61 to $42.23. It reported third quarter 2011 earnings of $15.10 billion, a decrease from second quarter earnings of $16.05 billion. Third quarter net income was $900 million, a decrease from second quarter net income of $1.07 billion. It has quarterly revenue growth of 17.40%, a return on equity of 13.46% and pays a dividend with a yield of 4.10%.

One of Dow Chemical’s main competitors is E.I du Pont de Nemours and Company (NYSE:DD), which has a market cap of $44.09 billion and is trading at around $48, with a price to earnings ratio of 12.96. It has quarterly revenue growth of 30.60%, a return on equity of 32.40% and pays a dividend with a yield of 3.7%. Based on these indicators Dow Chemicals’ is being out performed by E.I du Pont de Nemours.

Charles Brandes holds 203,816 shares of Dow Chemical, buying the entire holding in the third quarter 2011. The average purchase price per share was $30.07. Based upon the last trading price of $25.75, he has made a return of -14.37%.

Dow Chemical’s cash position has declined slightly in the last quarter. The balance sheet showed $2.21 billion in cash for the third quarter 2011, a decrease from $2.22 billion in the second quarter. The net tangible assets increased to $5.95 billion in the third quarter 2011, from $5.72 billion in the second quarter. Dow Chemical’s quarterly revenue growth of 17.40%, versus an industry average of 7.70%, and a return on equity of 13.46%, versus an industry average of 19.60%, indicates that it is generating better revenue growth than many of its competitors but is not delivering the same return on equity.

The earnings outlook for the diversified chemicals industry is cautiously positive. This outlook is primarily being driven by an increase in domestic demand as the economy improves. In addition, many companies in the industry are engaging in efforts to reduce working capital, optimize their supply chains and improve productivity, which should lead to margin benefits. The devalued US dollar also makes US exports more attractive and this should bode well for US based manufacturers such as Dow Chemicals.

It is difficult to understand Brandes decision to invest Dow Chemical primarily due to its decreased earnings and net income, as well as its weaker balance sheet, having reported a drop in cash holdings for the third quarter. On this basis I rate Dow Chemical as a hold.

America Movil S.A.B (NYSE:AMX)

America Movil has a market cap of $92.26 billion and is currently trading at around $23.50. Its 52 week trading range is $20.65 to $29.81. It reported third quarter 2011 earnings of $167.26 billion, an increase from first quarter earnings of $159.70 billion. Third quarter net income was $18.68 billion, a decrease from second quarter net income of $24.15 billion. It has quarterly revenue growth of 7.50%, a return on equity of 29.29% and pays a dividend with a yield of 1.10%.

One of America Movil’s competitors is Telefonica S.A. (NYSE:TEF), which has a market cap of $84.52 billion and currently trades at around $19, with a price to earnings ratio of 15.59. It has quarterly revenue growth of 3.6% and a return on equity of 15.11%. Based on these indicators America Movil is outperforming Telefonica S.A.

Brandesholds 12,625.975 shares of America Movil, buying 12,555,103 in the third quarter 2011, adding to the 70,872 shares already held. The average purchase price per share was $24.48. Based upon the last trading price of $23.37, he has made a return of -4.53%.

America Movil’s cash position improved in the last quarter. The balance sheet showed $142.03 billion in cash for the third quarter, an increase from $89.03 billion in the second quarter. America Movil’s quarterly revenue growth of 7.50%, versus an industry average of 22.40%, and a return on equity of 29.29%, versus an industry average of 13.30%, indicates that it has a stronger return on equity than many of its competitors but has lower quarterly revenue growth.

The earnings growth outlook for the wireless communications industry remains positive even when considering the projected low economic growth, high unemployment and poor consumer sentiment. The primary drivers of this positive outlook are that it is a major infrastructure product for both developed and emerging countries, and the increasing demand for wireless data and voice networks.

When the positive industry outlook is considered in conjunction with America Movil’s increased earnings and cash holdings as well as its solid return on equity it is easy to understand Brandes decision to invest in the company. Accordingly, I rate America Movil as a buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 5 New Buys From Charles Brandes