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Ignore These Stocks at Your Peril

By Chuck Saletta
January 26, 2009 | Comments (6)

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The worst of the crash is behind us.

I believe it has to be. Stocks are down so far from their 2007 peaks that if they fell the same amount in 2009 as they did in 2008, the market would literally be giving a bunch of companies away. Not just any companies, mind you, but even global powerhouses that have managed to remain profitable throughout this meltdown.

The lessons from 2008
If anything, the tumultuous nature of the 2008 market should teach us just how interconnected our world has become. What started out with a few American subprime borrowers failing to make their mortgage payments has morphed into a global financial and economic meltdown. Whether you're looking at Middle Eastern oil, Chinese factories, Indian technology companies, or Manhattan real estate, it seems that nearly everybody is hurting from this mess.

Yet as in any crisis, there's tremendous opportunity bubbling up from this one. Not only has global economic growth ground to a standstill, but stock markets worldwide have, too. You can now buy stakes in any number of strong, profitable, global businesses for a fraction of where they traded in the past few years.

The world on sale
Take a look at just how far some profitable, rather large global companies have fallen as a result of this malaise:

Company	Country	Market Cap (in millions)	Trailing Earnings (in millions)	% Off 3-Year High
Siemens (NYSE: SI)	Germany	$46,752	$8,057	62%
Nokia (NYSE: NOK)	Finland	$45,087	$5,573	67%
ArcelorMittal (NYSE: MT)	Luxembourg	$28,894	$14,466	76%
Ryanair (Nasdaq: RYAAY)	Ireland	$5,861	$110	82%
Verigy (Nasdaq: VRGY)	Singapore	$486	$28	72%
ABB (NYSE: ABB)	Switzerland	$27,291	$4,658	62%
Cemex (NYSE: CX)	Mexico	$6,609	$1,598	79%

Source: Capital IQ, a division of Standard & Poor's.

Yet in spite of their stocks plummeting, they remain fundamentally strong businesses. Plus, with their international headquarters and worldwide focus, they've got some built-in advantages compared to their distinctly American compatriots.

For starters, there's the fact that with its rescue efforts, the U.S. Federal Reserve and Treasury are pursuing policies that weaken the dollar. If you're an American investor, foreign stocks you buy today will naturally get pricier in dollar terms as the dollar sinks in response to the rescue efforts.

Then there's the price-value discrepancy. In spite of the global financial meltdown and the impact it has had on these companies' stock prices, their businesses have all remained largely intact. They're mostly acknowledged to be among the leaders of their industries, have proven earnings power, and are names people trust. Sure, their sales might slow along with everyone else's, and their earnings may temporarily slip. But five, 10, even 20 years from now, do you honestly believe they'll have vanished?

Finally, there's the corporate tax rates:

Country	Rate
United States of America	39.25%
Luxembourg	30.38%
Germany	30.18%
Mexico	28.00%
Finland	26.00%
Switzerland	21.17%
Singapore	18.00%
Ireland	12.50%

Combined national & sub-national tax rates. Sources: Organization for Economic Cooperation and Development, Inland Revenue Authority of Singapore.

Now, as fund manager Ron Muhlenkamp has said, the tax tail should never wag the investment dog -- so investing based on country-by-country taxation rates does not make for an investing thesis. But with the global economy in a rut, you cannot overlook the companies that are able to hold onto more of the fruits of their labor -- they're likely to be the ones best positioned to emerge stronger when the trouble ends.

With lower home tax rates than their American competition, these companies have an advantage. Sure, in ordinary times, American companies can stay competitive by borrowing at home and investing the cash internationally to lower their effective tax exposure. But in these days of extremely tight credit, the debt brought on by that sort of financial engineering is more of an anchor around a firm's neck than an intelligent international capital structure.

What's not to love?
At this point, a pretty strong catastrophe has already been priced into the market and these particular stocks. As the world starts to move past the meltdown and instead focus on the recovery steps yet to come, strong, global companies will be the ones best positioned to lead the way.

Businesses worldwide are starting to lick their wounds, assess the current situation, and rebuild their foundations. Those with the right global focus, structure, and scale will very likely emerge soonest, ready to pounce on the remains of their more heavily burdened competition. The worst of the crash is behind us. At this point, the bigger peril you face is quite likely the risk of not being invested when the inevitable recovery does take place.

At Motley Fool Global Gains, we intend to profit from this trend as the world returns to normalcy. By buying some of the best businesses in the world now, before the recovery is obvious, in full swing, and priced into their stocks, you can profit right along with us. Simply click here to learn more and start your 30-day free trial.

At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. Cemex is both a Global Gains recommendation and a Motley Fool Stock Advisor pick. Nokia is a Motley Fool Inside Value selection. The Fool owns shares of Cemex and has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (25)

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Report this Comment On January 26, 2009, at 6:34 PM, kurtdabear wrote:

Anyone who thinks the worst is behind us hasn't been around long enough, or studied history enough, to know just how bad things can get. The market right now is set up just like the dead-low tide that precedes an incoming tsunami--and I don't mean a tsunami of wealth and profit: I mean a tsunami that sweeps in and drowns all those who have ventured out onto the ocean bottom seeking treasure. Stocks are not well valued as "cheap" simply because they've gone down a lot over a few years--I made money in ABB a few years ago selling it (long) at less than you're now touting it. We'll see what "cheap" is as profits (or lack there of) begin to unroll (or unravel) in '09. Cheap will soon be defined by single-digit PE's and double-digit dividends. I used to look at the 3-5-year record of a stock to determine probable price ranges; now I try to look back at least 10 years, and preferrably 20--just to get some historic perspective.
Report this Comment On January 27, 2009, at 8:46 AM, Econom101 wrote:

Hardtimes and a slow recovery will remain with a great depression lingering in the background as long as Washington continues to throw money at the problem in all the wrong places. Not until Congressional representatives start using legislation aimed at putting an end to the preditory lending practices of finacial institutions, and prevent them from denying credit to any business or individual who has been credit worthy in the past, or shows to be credit worthy at the present will there be any significant change in the confidence of the general public and many in the business community in the stock market and the financial system connected to it. The license to legally steal using such schemes as floating interest rates, compounding interest, and excessive unlimited fees has literally brought the US financial system to a greedy collapse. A return to simple interest loans and credit would be the best stimulus package the stock market, and this Nation could get as far as restoring public confidence in the financial system. There will still be plenty of money out there to be made just not as fast as it was when greed ruled the financial and credit systems, and drove them out of control.
Report this Comment On January 27, 2009, at 12:46 PM, PearlandTX wrote:

Worker layoffs function like water being thrown on our economic fire. Even people who manage to stay employed slam the door shut on personal spending. The overall economy will improve only when businesses start re-hiring in Anticipation of an economic recovery. Yes, infrastructure companies like ABB (with approx $7 billion cash) are well positioned to Survive the economic malaise with less damage than consumer-focused firms, but I am waiting until their Q1 and maybe Q2 operating results to be published before I step back in. With such a strong cash balance, ABB is well positioned for superb growth when the economy begins to recover.
Report this Comment On January 27, 2009, at 8:35 PM, trenton1ryan wrote:

You're missing the bigger picture here. You're comparing the #s of those stocks with the easy days of '04-'07. Things have taken a dramatic turn, and we're not going to return to those days for a very long time-maybe not again in our lifetime. If jumping back into equities is the thing to do now, why is gold rising again?? The next 2 things (bad things) that will occur imo are the CC debt implosion and hyperinflation. Printing money to fix things is not going to fix the real problems. When oil takes off again, and gas prices skyrocket, things are going to get very messy, and Americans' frustrations will boil over into ugliness at the system, and at each other.
Report this Comment On January 27, 2009, at 9:43 PM, nicesave2000 wrote:

Fools, To what extent did sub-prime borrowers strat this mees; in comparison with with S.U.V.'s or C.D.S.'s? Thanks for the article and those who commented; nice to see other points of view. I'm out.
Report this Comment On January 29, 2009, at 12:36 AM, Teako3 wrote:

The U.S. corporate tax burden actualy paid is smaller than average for most developed countries. For corporations in 19 of the member states of the Organization for Economic Co-operation and Development, on average they paid 16.1 percent of their profits in taxes between 2000 and 2005, while corporations in the United States paid 13.4 percent. The maximum marginal is truly meaningless because of the many generous tax breaks inthe current tax law.
It is also interesting to note that 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005. I have never paid zero income taxes in over 40 years. To make matters worse, 72 percent of foreign companies doing busdiness n the U.S. paid no taxes for at least one year during the same time frame.
There are many more examples using hard factual data that seeems to discredit that corporate tax table.

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