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Safe 11% Annual Return With TECO Energy

Summary Emera is buying TECO Energy. The deal will probably close by mid-year 2016. The $2.43 net spread offers a 11% annual return. Deal Target Description TECO Energy (NYSE: TE ) provides electricity and natural gas. Deal Terms On September 4, 2015, Emera ( OTCPK:EMRAF ) and TE announced a definitive deal for Emera to acquire TE for US$27.55 per share in cash. Deal Financing The deal is not conditioned on financing. The buyer is working with JPMorgan (NYSE: JPM ), and the target is working with both Moelis (NYSE: MC ) and Morgan Stanley (NYSE: MS ). Deal Conditions The deal’s closing is subject to TE shareholder approval and standard regulatory approvals, including approval by the New Mexico Public Regulation Commission, the Federal Energy Regulatory Commission/FERC, US antitrust clearance, and the satisfaction of customary closing conditions. Deal Price The deal is priced at a 48% premium to TE’s market price before the news came out on the deal. It is at 11.6x trailing twelve months EBITDA. Deal History In mid-July, TE discussed a sale with potential strategic buyers including Duke (NYSE: DUK ), Entergy (NYSE: ETR ), NextEra (NYSE: NEE ), Southern (NYSE: SO ), Fortis ( OTCPK:FRTSF ), CenterPoint (NYSE: CNP ), Dominion (NYSE: D ), and Iberdrola ( OTCPK:IBDRY ). The TE board and management wanted a price of at least $25 per share. Given the strong price that the company ultimately secured, it is reasonable to assume that there were multiple bidders. Equity Options This is probably best exploited with common stock. However, one alternative is to write February 19, 2016, $25 TE puts which last traded for $0.50 with a bid of $0.40 and an ask of $0.65. These are okay, but not great. If the stock price declines or the volatility increases much from here, these could get increasingly interesting. Conclusion TE offers a reasonable return relative to its risks. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: I am/we are long TE. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our investors, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

Market Timing Risk

Market timing, i.e., when attempting to trade in or out of the market, is a difficult strategy for nearly all investors. A Barron’s article written in October of last year, The Timeless Allure of Stock-Market Timers , highlighted a few strategists’ ill-timed calls and their confusion on why it did not work. The worst part of market timing is the fact that the timing of getting out tends to occur near market bottoms and then getting back in the market near market tops. Making ill-conceived market moves can reduce the growth of one’s investments substantially. The below chart graphs the growth of the S&P 500 Index from 1990 through June 30, 2015. The blue line displays the growth of $10,000 that remains fully invested in the S&P 500 Index over the entire time period. The yellow line shows the same growth but excludes the top 10 return days over the 25-year period (6,300 trading days.) By missing the top 10 return days over the 25-year period, the end period value grows to only half the value of the blue line that represents remaining fully invested. Source: ICMA-RC Given the market’s recent pullback, the calls for getting out of stocks has picked up momentum. Until this most recent pullback, the S&P 500 Index had gone over 1,300 trading days without a 10+% correction. This extended run without a 10+% correction can be seen in the below chart. Source: Goldman Sachs For an investor, they should not get caught up in the market timing conundrum. These sell decisions often occur near equity market bottoms. Alternatively, an investor should stick with their asset allocation plan that incorporates their time horizon and risk tolerance. If the recent market pullback is jeopardizing one’s retirement as a consequence of the recent downward move in equities, they should reevaluate what an appropriate asset allocation should be. The investor’s asset allocation preferences should incorporate the time horizon for various buckets of assets. Shorter-term investments should not be invested in equities if accessing these funds will occur over the next several years. Timing the market may sound appealing, especially after a pullback like we are experiencing at the moment. Reducing equity exposure when the market has become increasingly volatile will certainly relieve some anxious feelings. If near-term access to investments necessitates reducing equity at the moment, be sure that is the case and equity exposure is not being reduced in an effort to simply time the market. The increased market volatility experienced over the last few months is certainly more typical of equity movements and is likely to continue in the near term. Share this article with a colleague

The Global X MSCI Pakistan ETF: High Growth, Low Valuation And Decreasing Terrorism

Summary Pakistan’s stock market has risen substantially since 2012, yet valuation is still extremely low. Pakistan’s stock exchange has had substantial performance with a YTD return of 8.87%, and a 1 year return 21.18%. Terrorism has been decreasing substantially in Pakistan, according to a report released by the Department of State. Inflation has recently improved from the high levels consistently experienced between 2010 and 2014. Certain industries have displayed substantial growth, such as the cement industry, which grew by 57% this year. The Global X MSCI Pakistan ETF (NYSEARCA: PAK ) is an excellent value pick, and a closer examination of Pakistan’s economy, stock market, and political risk all verify that soon to emerging Pakistan is an excellent investment climate. The fund’s P/E ratio is currently 9.12, which is low for Pakistan, and is also lower when compared to other ETFs in frontier and emerging markets. The ETF was just created this year, and its price has consistently been between 14.00-16.94. PAK data by YCharts The Karachi Stock Exchange Pakistan’s stock exchange has had substantial performance with a YTD return of 8.87%, and a 1 year return 21.18%. Such a high index gain could be met with further growth, by strategically investing in undervalued companies. The Global X MSCI Pakistan ETF is an excellent way to potentially outperform the index, while the true value of value investing in individual companies is unfortunately unavailable to US investors. (click to enlarge) Source: Trading Economics The fund invests in some of the largest market cap companies from the KSE 100 index. Liquidity of the Karachi stock exchange is very high, with the top 20 most liquid stocks trading between 2 million to 12 million shares daily. The average P/E for the 20 most undervalued companies from the KSE 100 index is 6.6. Substantial higher valuation can be found for other companies from the KSE 100, verifying that the fund can overall be considered cheap. Pakistan’s Annual GDP Growth (click to enlarge) Source: Trading Economics Pakistan’s annual GDP growth is expected to increase to 4.96% by the 2nd quarter of 2016 . The correlation between GDP growth and the gain of Pakistan’s stock market is clear, by examining the rise that began in 2012, and the lower levels of growth experienced in 2010. Consumer Spending/Inflation (click to enlarge) Source: Trading Economics Consumer spending growth has been substantial in Pakistan, further attributing to the country”s economic growth. (click to enlarge) Source: Trading Economics Inflation has currently become drastically lower, and is projected to remain near 2% during the next 12 months. This represents substantial improvement from the drastically higher levels of inflation between 2010 and 2014. From Frontier to Emerging Pakistan is on track to soon be an emerging market, and high levels of economic growth can be seen, with specific industry outliers that are displaying substantial growth. Charlie Robertson, London-based chief economist at Renaissance Capital Ltd., said the following regarding the untapped potential of Pakistan: “It is the best, undiscovered investment opportunity in emerging or frontier markets. What’s changed is the delivery of reforms-privatization, an improved fiscal picture and good relations with the IMF.” The IMF has said that Pakistan is making excellent progress in meeting targets for economic growth. Pakistan’s cement industry in particular has displayed substantial growth, with 57% growth in the past year. D.G Khan Cement gained 62% this year, Maple Leaf Cement Factory Ltd. gained an impressive 161% this year, and Fauji Cement Co. gained 81%. The nation’s construction industry is also a bright spot, as it grew by 11.3%, nearly double the 5.7% target. Decreasing Terrorism Apart from the fact that Pakistan’s stock market has done nothing but soar since 2012, amidst issues with terrorism, investors can feel further confidence regarding the trends of reduction of terrorism in Pakistan. According to a report released by the US Department of State , Pakistan was among the top of a list of 95 countries in the world where terror attacks decreased. The overall increase of terrorist attacks and deaths in these 95 countries was 35% and 81% respectively, edifying that Pakistan is an outlier in terms of decreasing terrorism. With low valuation and high growth, investors can feel further confident in Pakistan, as terrorism is decreasing substantially. Conclusion Now is certainly a strategic time to invest in Pakistan, as valuation is current low, and the country is experiencing substantial growth. Inflation has drastically improved from the high levels from 2010 to 2014, and terrorism has very recently been declining faster than other countries. The Global X MSCI Pakistan ETF is an excellent way to profit from Pakistan’s growth, with the superior model of directly invest in equity in Pakistan not being available to US investors. The newly launched fund’s price has remained relatively consistent, and valuation is still incredibly low. Now would buy an excellent time to buy and hold long term, waiting for an increase in price to come as investors realize Pakistan’s potential. Until then, Pakistan’s status is certainly being relegated, and the early movers are sure to receive substantial returns. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.