The Nine Largest Italian Companies By Revenue 2012

Italy has one of the world’s largest economies in the world. Though the country has a rich history and cultural heritage, currently it is going through some tough economic times. Despite the current problems, as a developed country Italy is home to many world-class companies. In this post, let us take a quick look at some of the largest Italian companies. Before we get into that, here are a few facts about Italy:

  • Italy had a population of over 61.0 million in 2012.
  • Italy has the 11th largest economy in the world with a GDP of about $1.8 Trillion (2012 data).
  • The country’s north is highly developed with many industrial companies while the South is less developed, agriculture-based and depends more on government subsidies.
  • Unemployment is high in Southern Italy compared to the North.
  • The economy is composed of many small and medium-sized family-owned companies.
  • Italy is a member of the G-8 group of countries.
  • The country’s major trade partners are Germany, Spain, UK, France, China and the U.S.

Source: CIA World Factbook

In order to identify the largest Italian companies by sales, I referred to the Fortune 500 Global list. Nine companies from Italy appeared in the 2012 rankings. These companies are listed below with their global and country rank together with their total revenues:

 

Source: Fortune Global 500

The energy giant Eni Spa(E) is the largest Italian firm by revenues. Eni is the largest oil, natural gas and electric utility in the country. The NYSE-listed company has a market cap over $77.0 billion and the ADR yields a dividend of 5.73% now. Enel SpA (ENLAY) is another electric utility. UniCredit Group and Intesa Sanpaolo (ISNPY) are two of the large banking groups. Currently Telecom Italia (TI) has a 2.73% dividend yield.

Update: The full list of Italian ADRs trading on the US markets can be found here.

Related ETF:

iShares MSCI Italy Capped Index ETF (EWI)

Disclosure: Long EWI

Total Return vs. Price Return of Two ETFs

Investors can the amplify returns of an investment in a stock by reinvesting dividends.This return known as the Total Return will be substantially higher than the Price Return  in the long-term  due to the effect of compounding. The difference in returns between the total return and price return will be especially significant for companies with above-average and growing dividend yields.

While this strategy works with stocks does it work with ETFs?

Since ETFs are similar to stocks in many aspects one can assume that this strategy will work with ETFs also. So in order to verify this assumption I did a quick check of returns using two of the largest ETFs for US stocks. The results show that total returns for ETFs is higher than price returns. Unlike stocks ETFs can have other distributions such as capital gains in addition to dividends. Hence the total return calculated for ETFs includes both dividends and distributions.

1)  Total Return vs. Price Return for SPDR S&P 500 ETF (SPY) from Jan 2,2008 to Mar 13, 2013:

Click to enlarge

SPY-Price-vs-Total-Return

As the chart above shows the gap between the two returns is indeed large. Reinvestment of dividends and distributions yielded 12.3% more than the return from price appreciation alone.

Currently the ETF has $125.0 billion in assets and a 2.04% distribution yield. The annual dividend yield is 1.99%.

2) Total Return vs. Price Return for SPDR Dow Jones Industrial Average ETF (DIA) from Jan 2,2008 to Mar 13, 2013:

DIA-Price-vs-Total-Return

Source: ETFreplay.com

The total return for this ETF is more than double that of the price return for the period shown.

Currently  the total assets of this fund is $10.0 billion and the distribution yield is 2.36%.The annual dividend yield is 2.29%.

Note: Distribution yields and asset sizes noted are as of Mar 13, 2013. Data is known to be accurate from sources used. Please do your own research before making any investment decisions.

Disclosure: No Positions

Why Diversification in Stock Holdings is Important

Diversification helps reduce risk and volatility of a portfolio. Some investors falsely assume that diversification eliminates risks altogether. This is not true. Diversification only helps to reduces risk but not eliminate it. For example, a well-diversified portfolio of stocks may fall 15% when the market falls 20% or 25%. In a major market crash such as the one we saw in 2008-09, diversification would have helped a portfolio from a complete wipe-out.

While one type of diversification can be achieved by building a portfolio of various asset classes, further diversification is important necessary the equity portfolio of the portfolio. Simply putting all the money  in one or two stocks or even five is a recipe for disaster. Depending on the size of a portfolio,one can diversify with 25-50 stocks. Since each stock behaves differently based the sector, earnings and so many other factors it is a wise idea to hold many stocks from a variety of sectors in order to  reduce the risk of loss.

The following table shows how not all stocks follow the market:

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SP500-Stock-Movements-by-year

Note: 6. Source: Schwab Center for Financial Research with data from Standard and Poor’s. Total return includes reinvestment of dividends.

Source:  The Portfolio Pyramid: How to Diversify Your Stock Investments, Charles Schwab

In 2002, the S&P 500 index fell about 22.0% but 131 of the index components were up that year. Similarly in 2012, the S&P 500 had a total return of 16.0%. However not all the companies in the index was in the positive territory for the year. In fact, 107 of the index components had negative performance.  Even during the major market meltdown in 2008 when the S&P 500 fell 37.0%, there were 25 stocks that went up.  Since it is impossible to predict the future performance of stocks precisely, diversification is one way to play it safe.

The Journal had an interesting story about a barber and former investor Mr.William Flynn. Mr.Flynn lost  most of his fortune during the bubble days of dot-com mania by putting his money in just one company – EMC Corp. (EMC). Later in 2007, he got wiped out again when he invested all his money in only one company for the second time. This time it was Eastman Kodak Co. that later filed for bankruptcy. This unique case is a reminder of how investors can easily lose their hard-earned money if they fail to diversify. The benefits of diversification cannot be underestimated. Diversification matters whether an investor has only $28.0K to invest or has $2.80 million to invest.

From the article:

Mr. Flynn claimed to have put 100 friends into EMC stock in 2000, including Mr. Capobianco. After Mr. Flynn’s appearance in the Journal in March 2000, EMC invited the barber to a shareholder’s meeting to meet company executives. Mr. Flynn later wore a jacket emblazoned with the EMC logo around town.

The barber held EMC stock to a peak of about $130 a share, only to ride it back down to less than $4. His fortune began with $150,000, swelled to $834,000 in September 2000, and then shrank back to about where it started.

Mr. Flynn said his wife, Jean, panicked. She had always worried about her husband’s big stock market bets. Mr. Flynn, meantime, said he grew forlorn.

“My wife and I were really shook up by it,” he said. “I was so despondent over it, I just let it go. I thought to myself, ‘If it comes back, it does. If it doesn’t, then, well….'”

EMC closed Friday at $24.30.

Mr. Flynn took a breather from trading before getting back into the market in 2007. He put some money in Eastman Kodak Co., EKDKQ +3.47% at the urging of a stock broker. The camera-maker filed for bankruptcy last year, wiping out the barber’s $28,000 investment.

A few weeks ago, Mr. Flynn made a decision to sell what was left in his portfolio. “I’ve been thinking about it a long time, and my wife and I talked about it,” Mr. Flynn said. “We came to the conclusion that the stock market is just not for us.”

Related ETFs:

SPDR S&P 500 ETF (SPY)

Disclosure: No Positions

The Fortune Global 500 Companies List 2012

Every year Fortune magazine publishes its famous list of Global 500 companies ranked by Revenue and Profits. The rankings for 2012 are listed below:

Energy companies dominate the top 10 spots since they benefit immensely from high oil prices. Oil giant Royal DutchShell (RDS-A, RDS-B) topped the list based on revenues followed by ExxonMobil (XOM). It is interesting to note that Walmart(WMT) and Toyota(TM) appear among the top 10 firms.

Data Source: The Fortgune Global 500, Fortune

Download: Fortune Global 500 List for 2012 (in excel)

Disclosure: No Positions

Which British Banks Are Worth Investing In Now?

The British banking industry is slowly recovering from a multitude of problems including the effects of global financial crisis, the European debt crisis, the LIBOR manipulation scandal, etc. Among the top five banks, three reported decent earnings for  last year. In addition, HSBCBarclays and Standard Chartered also increased their dividends for the first time since the financial crisis  in the most recent earnings.  All the three banks have strong exposure to overseas markets with HSBC calling itself  “the world’s local bank”. Hence investors looking to add British bank stocks can add these banks at current or lower prices.

Lloyds Banking Group and Royal Bank of Scotland Group reported losses for 2012 and currently do not pay a dividend.The British government still holds major stakes in them. Hence uncertainty shrouds the future of these banks. Since markets hate uncertainty it is not surprising that investors are not attracted to them.

From an article in The Wall Street Journal today:

Donald Kohn, a former U.S. Federal Reserve vice chairman now on the U.K. central bank’s Financial Policy Committee, said in an interview that a clear plan to get the two lenders back into wholly private hands would enable the duo to be “a more vigorous competitive presence in the U.K. market.”

The British taxpayer has an 81% stake in RBS and a 40% stake in Lloyds, following bailouts in 2008 and 2009. Official figures show lending to most parts of the economy shrank in 2012.

“I think sitting where we are right now with this major government ownership, with people not being clear about the path forward and the timing of the path forward, I think [that] has perhaps contributed to some extent to some of these supply issues,” Mr. Kohn told The Wall Street Journal in London.

The five British banks are listed below with their tickers on the US markets and the current dividend yields:

1.Company: HSBC Holdings PLC (HBC)
Current Dividend Yield: 6.57% 4.10%

2.Company: Barclays PLC (BCS)
Current Dividend Yield: 2.17%

3.Company: Standard Chartered PLC (SCBFF)
Current Dividend Yield: 3.44%

4.Company: Royal Bank of Scotland Group PLC (RBS)
Current Dividend Yield: No dividends paid

5.Company: Lloyds Banking Group PLC (LYG)
Current Dividend Yield:  No dividends paid

The following chart shows the performance of the five banks since 2009:

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UK-Bank-Stocks-Return

 

Clearly RBS and Llyods are lagging their peers by a wide margin.

Source: Yahoo Finance

Note: Dividend yields noted are as of Mar 12, 2013

Disclosure: Long LYG