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The Greek pantomime is on tour in Russia…

Greece’s new left-wing PM, Alexis Tsipras, is in Moscow today to meet with Russian president Vladimir Putin.

Tsipras wants Putin to throw Greece a bone and help it pay back its creditors. Athens is on the hook for a roughly €460 million ($498 million) loan repayment to the International Monetary Fund (IMF) that comes due tomorrow.

And it’s still in heated negotiations with the IMF, the European Union and the European Central Bank (ECB) – the so-called “Brussels Group” – to unlock its bailout package.

*** Political brinksmanship in Moscow

This is political brinksmanship, pure and simple.

Russia is not exactly flush right now… thanks to the big drop in oil revenues, a weak ruble-euro exchange rate and economic sanctions. And it’s highly unlikely it’s going to come up with a viable substitute for the Brussels Group’s bailout package.

Tsipras is playing the Russia card to give the impression that Greece has options if the Brussels Group doesn’t unblock its bailout funds. He’s also looking to rattle Western politicians, who don’t like the idea of Russia expanding its influence in Europe.

*** The REAL story in Europe right now

As we’ve said before, Greece makes for a great story, but it’s not nearly as important as the mainstream press thinks it is.

And it’s a major distraction from the real story in Europe – which is a recovering economy enjoying major stimulus tailwind from the ECB’s QE.

More important for long-term investors, quality European stocks are selling at discounts to their US counterparts. And as regular readers will know, we always caution against overpaying regardless of how good the investment is.

According to data from German investment firm StarCapital, the European stock market traded on a CAPE ratio of 15.2 versus a multiple of 28.8 for the US stock market. This looks at 10 years of inflation-adjusted earnings instead of the usual one-year view to control for big swings in annual earnings.

Meanwhile, the European stock market yields 3% versus just 1.7% for the US market. Put another way, you get paid 76% more in dividends for each dollar invested in Europe versus every dollar invested in the US.

040815 DRE FEZDIJA

As you can see above, the SPDR Euro Stoxx 50 ETF (NYSE:FEZ) – the European blue-chip stock fund our managing director, Amber Lee Mason, recommended to Investor Network readers last September – is up by almost 8% so far in 2015 versus a 0.3% gain for the Dow.

(If you’re a paid-up Investor Network subscriber, you can read the full transcript of my conversation with Amber here.)

*** China’s price-to-whatever ratios

Bill recently warned Diary readers that US biotech stocks could be in a bubble.

For instance, the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), which tracks biotech and pharmaceutical stocks listed on the Nasdaq, is up 51% over the last 12 months. And according to data from iShares, it trades on a 12-month trailing price-to-earnings (P/E) ratio of 30.4.

That’s roughly the multiple the Nasdaq traded on circa 1998… two years before the index peaked in March 2000.

But valuations for Chinese tech stocks make dot-com valuations look like a bargain. As Bloomberg reports:

The world-beating surge in Chinese technology stocks is making the heady days of the dot-com bubble look tame by comparison.

The industry is leading gains in China’s $6.9 trillion stock market, sending valuations to an average 220 times reported profits, the most expensive level among global peers. When the Nasdaq Composite Index peaked in March 2000, technology companies in the US had a mean price-to-earnings ratio of 156. […]

Valuations in China are now higher than those in the U.S. at the height of the dot-com bubble just about any way you slice them. The average Chinese technology stock has a price-to-earnings ratio 41% above that of its US peers in 2000, while the median valuation is twice as expensive and the market capitalization-weighted average is 12% higher, according to data compiled by Bloomberg.

Chinese tech stocks make up just 13% of overall value of the Chinese stock market versus about 31% in the US at the peak of the dot-com bubble in 2000.

Still, it remains our view that someday soon we’ll be talking about China as the mother of all bubbles… and scratching our heads about why nobody else saw the subsequent bust coming.

*** Banking’s “hidden toll collector” powers ahead

One tech stock we do like is the top-performing recommendation in colleague Braden Copeland’s Building Wealth portfolio, Jack Henry & Associates (NASDAQ:JKHY).

JKHY is up 24% since Braden recommended it to his readers last May. Which is almost exactly what Braden predicted. Last May, he told Building Wealth readers he expected “25% returns within the next 6-12 months.”

And so far this year, JKHY is trouncing the Nasdaq.

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You’ve probably never heard of Jack Henry & Associates unless you’re subscribed to Braden’s advisory. In fact, Braden calls the company banking’s “hidden toll collector.”

Here’s what Braden told his readers last May:

JKHY’s computer-based solutions include processing transactions, automating business processes and managing customer account information for nearly 12,000 financial institutions and businesses.

JKHY is essentially a software and services company… a type of “picks and shovels” business for the banking industry.

And to break it down further…

The company delivers its products and services under three branded divisions:

1. “Jack Henry Banking” provides data processing systems to almost 1,300 banks ranging from community institutions to mid-tier banks with assets of up to $30 billion.

2. “Symitar” provides software systems designed to address the special needs of credit unions. JKHY is by far the largest single provider of computer systems for credit unions in the US.

3. “ProfitStars” focuses on selling add-on products to prospects that are not already part of JKHY’s existing customer base. Its goal is to establish relationships with new prospects and sell them easy-to-add new products with an eye toward increasing those sales over time.

JKHY may be a tech company, but it’s not the kind of flash-in-the-pan dot-com stock you might associate with the Nasdaq.

For a start, it was founded almost four decades ago. And unlike many of its newer Nasdaq counterparts, it’s got plenty of earnings.

For the quarter ended December 31, 2014, JKHY generated total sales of $324.2 million – up from $304.9 million in the same quarter a year ago. And its net profit on those sales was $59 million – up from $54.9 million in the same quarter a year ago.

And a big chunk of those sales came from recurring revenues. As Braden told his readers last May:

During 2013, when the company’s total sales were $1.13 billion, 90% of it came from Support and Services and 80% of the overall total was recurring revenue.

That means it was, and remains, revenue the company will continue to receive contractually for at least one more year (we know from JKHY’s track record that, as a practical matter, this revenue will continue to flow to the company for much, much longer). That is the key to keep in mind: JKHY enjoys an exceptionally large, stable and growing revenue base.

And Braden reckons this is set to continue… As you can see from the chart below, going back to 2009, as JKHY’s revenue has grown (the grey bars), the recurring revenue component has grown right along with it (the dark blue bars).

040815-BPB-recurring-revenue

As Braden says, looking at this chart, you can almost hear that “ka-chunk, ka-chunk, ka-chunk” sound of recurring revenue.

Click here to find out more about Jack Henry and Braden’s other Building Wealth recommendations.

*** Would you pay 200 times earnings to own Chinese tech stocks? Let me know at [email protected].

Bill’s account of his soon-to-be-retired ranch foreman, Jorge, really struck a chord with Diary readers. Here’s Bill:

Jorge is about our age (mid-60s). He has been working on the ranch for 40 years. He still swings easily into the saddle and sets off at a gallop. But in the evening, his joints hurt.

“I went to the doctor,” he told us. “He gave me a prescription for glucosamine. But it doesn’t seem to work. I don’t notice any difference. Some days are fine. Others are not so fine. I’m going to have to retire.

“I had hoped to work for another 10 years. But nature has her limits. I’m going to stop at the end of this year.”

Writes Diary reader Doug C.:

Jorge may need to take the glucosamine-chondroitin tablets for several months in order to get a noticeable effect from them. If he hasn’t, he may want to do that before deciding to retire.

And this from Janet O.:

Screw the retirement, especially if you like your job. And screw the glucosamine… and joint replacement surgery! Get over-the-counter krill oil.

And this from H.K. R.:

Tell Jorge to take 3 grams of niacinamide daily in divided doses. Works for me at age 84.

Chris comment: I know Bill is very touched by all the helpful notes. And I know he’s passed them on to Jorge (who seems set on retiring regardless).

We’ll keep you posted on any updates!

Regards,

Chris Hunter

April 8, 2015