With world stock markets up 31% in 2009, 8% in 2010, and almost 10% so far this year, it has become slim pickings for those of us seeking out attractively priced global stocks. That said, there are pockets of opportunity, and I've spent time with each of the three stocks featured below over the past month trying to figure out if it's worth buying shares.
Each offers a few very attractive traits and a valuation that could be well below what's fair, but each also has obvious pitfalls or reasons to want to learn more. At this point, even after hours of reading and discussion with our global research team, I'm still wavering on all three. Maybe you can push me to one side or the other in the comments below.
But before we get to that, here are the three stocks I might just buy.
Stock No. 1: Intel
There's nothing overlooked about Intel
With regards to the first two issues, Intel's painful lack of foresight has been ARM Holdings'
Further, at Intel's analyst day on Tuesday, it argued that it would remain a growth business thanks to rising demand for high-performance computing, the increasing affordability of PCs in emerging markets, and smartphone chip offerings that would be ready to ship in 2012. These are plausible arguments, particularly since I estimate Intel is priced for just 5% annual free cash flow growth, but the great unknown is just how much tablets will co-opt PCs. And with Microsoft
Finally, while Intel continues to raise its dividend and increase its repurchases, it was just last year that the company acquired McAfee for $7.7 billion in a deal that continues to make little sense to me. A tech company with cash is truly a dangerous beast.
All told, I'm on the fence here. The valuation is compelling in light of device sale and connectivity growth in emerging market, but there are clear and present risks to the thesis.
Stock No. 2: Nintendo
Another sliding cyclical technology company, almost 50% of Nintendo's (NTDOY.PK) $30 billion market value is now sitting in cash. That means you're paying just 1.2 times sales and 6.7 times EBITDA for an innovative company that's previously produced blockbuster systems for the still-growing gaming market. The risk here, however, hinges on the new system planned for 2012. No one knows exactly what's in the works, but rumors are that it will be targeted at high-end gamers and previewed at next month's E3. Obviously, a system target at the high-end can't be the same magnitude of success that the Wii was, but thanks to Kinect, Android, and Apple
This is a cyclical company with innovation risk. While that's a dangerous combination, my inclination is that Nintendo's track record makes this worth a small position ahead of that E3 release, when we will find out much more about the prospects for a hit.
Stock No. 3: Country Style Cooking Restaurant
This stock is mispriced. That's because Country Style Cooking
Yet how much is Country Style Cooking worth if it is indeed a national brand? My estimate is that if Country Style Cooking can profitably open 1,000 locations in China over the next decade, then the stock is worth at least $25 per share (it would then be a $2 billion sales business making almost $200 million per year). Yet if it can get to 1,000, then that's still only one location for every 1.4 million people in China. Here in the U.S. there is one McDonald's
That, in other words, is your potential upside: somewhere between 1,000 and 63,000 locations. Whether it ends up being one, the other, or somewhere in between, there is upside for investors. The company, however, has to prove that it can expand beyond Sichuan and that management can manage rapid growth. Those two variables have me holding off for now.
Get Tim Hanson's top global stock picks by joining Motley Fool Global Gains. Tim's "Global View" column appears every Thursday on Fool.com.
3 Stocks I Might Just Buy
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Tim Hanson is co-advisor of Motley Fool Global Gains. He does not own shares of any company mentioned. The Fool owns shares of Intel and Microsoft. Nintendo and Apple are Stock Advisor choices. Country Style Cooking is a Rule Breakers recommendation. Intel and Microsoft are Inside Value picks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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