4 Stocks For Global Growth Exposure

Includes: MOS, MT, PTR, RIO
by: The Financial Lexicon

With the New Year just around the corner, it’s time to put together your 2012 wish list of stocks. Regardless of the type of investor you are, it pays to be prepared. Get your list of stocks and entry points ready now. If you are an investor looking for exposure to a global growth story, consider the four companies mentioned below.

Beyond a brief summary of the businesses, this article will discuss entry points for each stock with a focus on previous support levels, rather than a focus on valuation based on current earnings estimates. The reason for this is two-fold: First, I don’t give a lot of credence to current forward earnings estimates given the widespread uncertainty about worldwide growth in 2012 and beyond. The analysts might end up being correct, but I wouldn’t invest any of my money based on what analysts’ forward estimates are nowadays. Second, any investor purchasing these stocks out of a need to diversify a portfolio towards global growth (as a hedge against something else), or because one truly believes in a global growth story, should have no qualms purchasing these stocks at current levels or levels discussed in the paragraphs that follow. The reason for this is that if you believe in the near-term resumption of strong global growth, current earnings estimates should make the stocks appear cheap to you. And, if you need to diversify your portfolio to gain exposure to global growth, you likely won’t be all that picky about whether current levels are cheap enough. You’ll simply get yourself the exposure you need.

With all that said, in no particular order, here are four stocks for your 2012 global growth wish list:

Rio Tinto (NYSE:RIO), the mining giant with a global footprint, is a company to keep on your radar screen if you want exposure to a diversified portfolio of metals and minerals. Its portfolio of products includes exposure to iron ore, aluminum, copper, gold, diamonds, minerals, and energy. Rio Tinto’s iron ore group contributed $24 billion in revenues in 2010, the most of any of its segments. As the world’s second largest producer of iron ore, Rio has an important role in making sure this essential mineral substance is available for the production of steel.

The copper group produced 678,000 tonnes of copper in 2010, making it the world’s fifth largest supplier at the time. Among other by-products of its copper operations, Rio Tinto also produced 772,000 ounces of gold in 2010. Rio’s aluminum group is a global supplier of bauxite, alumina, and primary aluminum; its diamonds and minerals group mines, refines, and markets diamonds, borates, and titanium dioxide. Finally, its energy segment is one of the world’s largest producers of uranium. The energy group is also a producer of thermal and coking coal.

In terms of the stock, an area of interest for investors should be the $40 to $46 range. The stock bottomed around $40 in 2010 and 2011, but it also has several other tradable bottoms in the $43 to $46 range dating back to 2006. In 2008, the stock did plunge from nearly $140 all the way down to $14.80. If you believe we are in a secular commodity bull market, which will resume under the guise of global growth, Rio Tinto seems like a leading candidate for equity exposure to that story. If you are concerned about a worldwide recession sending the stock significantly lower in 2012 before an ultimate rebound in global growth, consider buying in increments and save some dry powder for a drop below $40. If, on the other hand, you think it’s up and away from here for the global economy, then you would want to be accumulating the shares right now. For everyone else, buy on a dip and keep that $40 to $46 range in mind.

The Mosaic Company (NYSE:MOS) is a global leading producer and marketer of potash and concentrated phosphate. It produces ten different products designed to help create high crop yields for its customers as well as various feed ingredients designed to “improve the digestion of food, build stronger skeletal systems, and enhance lean muscle growth” in animals. Mosaic also produces various industrial products used, among other things, to manufacture plywood, reduce insect damage in lumber, and as ingredients in ice melting formulas.

In a day and age in which seemingly everyone is advocating buying stocks with large dividends, Mosaic’s volatile stock finds itself with essentially no dividend support. Similar to Rio Tinto, Mosaic’s stock plunged during 2008, from a high $163.25 on June 18 to $21.94 on November 20. Its 2011 low of $44.86 makes the $45 region an ideal place to pick up a few shares. If you are worried about a global slowdown next year or favorable weather sending agricultural commodities lower, scaling into this position is a wise choice. Further entry points in the $38 to $40 range and then the $30 to $32 range are possibilities if commodity prices head lower from here. If you believe there is no looking back for stocks tied to commodities and global growth, then you would likely feel comfortable purchasing Mosaic right around its current level of $49.25, down 44.81% from its 2011 high on February 14.

ArcelorMittal (NYSE:MT) is the world’s leading integrated steel company as well as the world’s fourth largest iron ore producer. It has a presence in over 60 countries and in 2010 represented approximately 6% of the world’s steel output. Its products and services portfolio is vast. It includes, but is not limited to, exposure to the automotive, construction, energy, agriculture, and mining industries.

It has mining operations in various countries, including Brazil, Australia, Canada, Russia, South Africa, and the United States. Not only is ArcelorMittal a top producer of iron ore, but it is also a top five producer of metallurgical coal.

While the steel industry has certainly been under pressure over the past few years, and overcapacity is still an issue, if you want exposure to a global growth scenario, a company like ArcelorMittal can find a home in such a portfolio. In general, many steel companies seem like a bit of a wild card given the uncertainty around the world, overcapacity in the industry, and unfavorable debt levels. While some investors might prefer to go after the equity of a steel company like Nucor (NYSE:NUE) with a solid balance sheet and strong credit rating, others will prefer to stick with the largest in an industry (ArcelorMittal) and a company with its hands in so many facets of the global economy that it might be, dare I say, too-big-to-fail.

Given the current overcapacity in the steel industry and MT’s current debt profile, there doesn’t seem to be a huge rush to put on a full position. This is one of those stocks that investors could slowly build a position in over time. When looking at the stock, the $15 to $17 range seems like an acceptable place to start building the position. This range more or less represents the bottoms from November 2008, March 2009, and September and November of 2011. It also represents the levels at which the stock topped out during the 2000 bull market. It is not uncommon to have prior significant resistance levels turn into support levels in future years. As time goes on, if the stock can consolidate in this region even with deteriorating financials or a deteriorating global economy, then investors can feel more comfortable adding to the position. If conditions materially improve worldwide, investors can always add to the stock at higher levels with the newfound confidence that things are getting better. As with the other stocks on this list, if you believe global growth is about to resume and the worst of the European crisis is behind us, you’ll want to accumulate the shares more aggressively at current levels.

PetroChina (NYSE:PTR) is one of the largest energy companies in the world and China’s largest oil and gas producer. Its Exploration and Production business had crude oil output of 857.7 million barrels in 2010 as well as 2.2 billion cubic feet of marketable natural gas output. PetroChina’s Refining and Chemicals business processed 903.9 million barrels of crude oil in 2010 as well as 79.45 million tons of gasoline, kerosene, and diesel. PetroChina’s Marketing business sold 120.8 million tons of gasoline, kerosene, and diesel in 2010, a 19.3% increase over the previous year. As of the end of 2010, PetroChina’s Natural Gas and Pipelines business was responsible for 32,801 km of natural gas pipelines, 14,782 km of crude oil pipelines, and 9,257 km of refined product pipelines. Furthermore, the company gives the global growth investor an opportunity for exposure to the Chinese renminbi via the dividend it pays out.

The stock is currently trading way above its October 2008 low of $56.30, and if a serious Chinese slowdown is something the world will soon experience, this is a dangerous stock to grab at these levels. If you believe the idea of a Chinese slowdown is ludicrous, but that oil prices do not have significant upside from current levels, then it seems appropriate to wait and start accumulating at levels somewhere between $100 and $115 (depending on overall market conditions). If you think a Chinese slowdown is an absurdity and oil prices are going to rocket higher from here, then you should be buying this stock hand over fist. If I were building a position at these levels, given the state of the world today, I would definitely save some dry powder for levels below $100, just in case.

Disclosure: I am long PTR, RIO.