5 Rock-Solid International Behemoths To Buy (And Possibly 'Sell') Right Now

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 |  Includes: COP, SIEGY, STO, TOT, VALE
by: Joseph L. Shaefer

First of all, why am I suggesting that you even consider buying anything right now? Don't I realize that we are about to complete the second leg of the W down? That the country is surely sinking into recession and the market is anticipating that fact? That Europe is about to implode?

As I warned 3 months ago, before it became front page news, it’s all true – and now that it’s hit Page 1, it’s old news. It’s time to be planning your next strategy, while all others are selling in panic.

I am clearly no Pollyanna and no Perma-Bull. Regular readers, or new readers astute enough to check an author's track record here on SA, will know that as early as mid-June I was beginning to warn followers that the euphoria then sweeping Main Street was likely misplaced (“Just How Sick is This Market?” 17 June.) As the ecstasy began to build to a fever pitch with Wall Street's manipulative assurances that we were about to enter the “usual" summer rally period, I wrote “The Myth of the Summer Rally” (28 June.) By mid-July, we had begun to see the extreme volatility that permeates weak markets moved higher only by manipulation at days’ end by Wall Street. And earlier this month I made a final appeal to our newsletter subscribers and SA followers to ignore Wall Street's hype and protect themselves with inverse ETFs and closed-end income funds selling at a discount. ("Is Wall Street TRYING to Force Us Out of the Markets?" 11 August.)

No one will be right 100% of the time and those who claim to do so will soon get their comeuppance. I don't cite the above articles to point out that my crystal ball is less cloudy than any other, but merely to point out that, this time around anyway, I was pretty much spot-on in terms of selling at a good time and moving into inverse ETFs and income funds. So when I now suggest that it will very shortly be time to buy ("sell") five great companies, it is because we have raised the cash to be able to buy five of the highest quality firms in the world at prices not seen, in some cases, well before the lows of 2009.

The seeming contradiction in my title – “to Buy (‘Sell’)” -- refers to two different methods of purchase. The first, with which we are all familiar, is to simply place an order with one's brokerage firm to buy X number of shares of the desired stock. The other, which we have already begun doing for many of our clients, is to "sell puts to open" on the same company's stock.

Let's take a look at these five market leaders, say a few words about what makes them special, and then evaluate the two different methods of acquisition for them.

Company / Headquarters

Symbol

Current FY

PE Estimate

Dividend Yield

Price/Sales Ratio

Price/Book Ratio

Statoil -- Norway

STO

7.56

4.3%

0.73

1.62

Total Fina -- France

TOT

5.81

5.8%

0.45

1.20

Siemens -- Germany

SI

8.56

2.8%

0.81

1.88

Vale -- Brazil

VALE

4.90

NA

1.45

1.16

ConocoPhillips -- USA

COP

7.62

4.2%

0.71

0.49

Click to enlarge

Copyright 2011 Stanford Wealth Management LLC

While I have selected companies from five different nations, Siemens could as easily be headquartered in the USA, Total Fina could as easily be headquartered in Norway, etc. All five are multinationals who do business in 30, 50 or 100 countries. Where they are headquartered is of little consequence with the possible exception of Vale. The other four are headquartered in nations that respect intellectual rights, property rights, and the rule of law. They enjoy transparency and good corporate governance with no or only minor instances of nepotism, bribery or corruption. Brazil? Well, let’s just say Brazil knows what the right thing to do is. The $64,000 Question is: will they do it? Still, Vale is such a compelling story with an asset base unlikely to be equaled anywhere else that it is worth our further due diligence.

Normally, to find stocks at these valuation levels you have to do extensive research to identify (what are usually smaller, less well-known, and way less well-capitalized) overlooked companies. Not today! By many value standards, these torch-carrying market giants, all with a market cap of $50 billion or more, are incredibly cheap:

Norway’s Statoil (NYSE:STO) is a fully integrated energy company: exploration, production, transportation, refining, and marketing of oil, natural gas, natural gas liquids, and petroleum-derived products. In addition, the company sells retail heating oil, kerosene, liquefied petroleum gas, and heavy fuel for industrial purposes, marine and aviation fuel, lubricants, and chemicals. It currently enjoys more than 2.2 billion barrels of proved reserves and 509 billion cubic meters of natural gas. It runs a network of more than 2,250 service stations in Scandinavia, Poland, Latvia, Lithuania, Estonia, and Russia. And on top of all this, it is one of the few $50 billion companies that invited me to visit them a few years back when I was in Stavanger, Norway. I have deep respect for managements ethics and ability. STO is a serious contender worldwide with the deep pockets to partner with the likes of Exxon (XOM,) Chevron (CVX,) and a number of sovereign national energy monoliths. It sells at a PE of less than 8, yields better than 4%, has a Price/Sales Ratio (PSR) of 0.73, and sells at roughly 1.6 times its book value.

France’s Total (NYSE:TOT) suffers from a unique confluence of events. Investors are reducing their exposure to “Europe” but they are doing so the wrong way. Greek banks and those who finance them -- of course they were a reasonable sell. Today the banks still in bed with Ireland, Portugal, Spain, and the other weak sisters should be viewed as possible sell candidates. But people have tossed out the clean babies with the dirty bathwater and it’s time for some of us to start picking them up. Total is involved in everything Statoil is – and more. It also provides power generation from gas-fired power plants, nuclear, or renewable energies; produces and markets coal; and has a foot in solar power systems as well. Its proved reserves total 10 billion barrels of oil equivalent in its oil and gas holdings. And it has interests in 24 refineries located in Europe, the United States, the French West Indies, Africa, and China, as well as its network of 17,490 service stations and its chemicals segment which produces petrochemicals and fertilizers. And TOT is one cheap stock: it sells just above its in-the-ground book value, with virtually no premium for its network of customers, its experience in over 50 nations, or its relationships with other major and secondary firms. It sells at half of sales and a Trailing 12-Month PE of just 6.5, with an estimate of 5.8 for the current fiscal year. Finally, it yields just under 6%. Let others avoid opportunity like this because they think Total is “European.” It is a multinational – and it hasn’t loaned a dime, cent, or centime to Greece.

Germany’s Siemens (SI) is the infrastructure giant sitting in the catbird seat at the nexus of the need for infrastructure buildout in the developing world and infrastructure replacement in the developed world. Nominally considered an electronics and electrical engineering company, it is a critical player in manufacturing, energy, and healthcare worldwide. It sells massive transportation systems, building technologies, transmits and distributes power, manufactures and sells diagnostic and therapeutic systems, and offers IT systems for clinical and administrative purposes. The company also provides technical maintenance, professional, consulting, and financing services, insurance solutions, and has an extensive real estate business. Finally, it is almost like a Berkshire Hathaway (NYSE:BRK.A) with its equity investments in telecommunications infrastructure, household appliances, defense technology, and communication and entertainment device companies.

Brazil’s Vale S.A. (NYSE:VALE) made its bones in the exploration, production, and sale of basic metals, including iron ore, nickel, copper, and aluminum. The company also is a major factor in fertilizers (potash, phosphates, and nitrogen ) and steel, and operates massive transportation systems including railroads, ports, and terminals for their own production as well as for third party cargos. Finally, like every other pick here, it generates energy, in Vale’s case through hydroelectric power plants.

Last but not least, ConocoPhillips (NYSE:COP) of Houston, Texas, USA, is a global integrated energy company. Its E&P segment explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids. Its Midstream segment gathers, processes, and markets natural gas; and fractionates and markets natural gas liquids in the United States and Trinidad. The company’s Refining and Marketing (R&M) segment purchases, refines, markets, and transports crude oil and petroleum products, such as gasolines, distillates, and aviation fuels. Its Chemicals segment manufactures and markets petrochemicals and plastics.

Take a look not only at the value these companies represent in the chart above, but their price action thus far this year in the chart below. Click to enlarge:

Click to enlarge

I believe they represent fine buys even at these prices. But if you are looking to take the chance that you might buy them even cheaper, you might instead sell puts to open. One of two results will occur: either the stock will go down and you will have it “put” to you – but at a price cheaper than you were willing to pay anyway, or it will not decline enough and you will instead pocket the premium as found money and move on to a different, equally undervalued, company.

An example of this is the trade we just laid on and suggested to our Investor’s Edge ® subscribers last week: SELL 7 TOT $45 of Jan 2012 puts to open at a limit of $3.50 or better. That’s just 4 months away. If the stock is put to us, we’ll own it at the price for which it last sold in December of 2003. Now that’s cheap!

Disclosure: I am long STO, TOT, COP.

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: we do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.

Past performance is no guarantee of future results, rather an obvious statement but clearly too often unheeded judging by the number of investors who buy the current #1 mutual fund only to watch it plummet next month.

We encourage you to do your own research on individual issues we recommend for your analysis to see if they might be of value in your own investing. We take our responsibility to proffer intelligent commentary seriously, but it should not be assumed that investing in any securities we are investing in will always be profitable. We do our best to get it right, and we "eat our own cooking," but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.