3 Stocks I Might Just Buy

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 (Nasdaq: INTC  ) -- a tech titan with $46 billion in sales and a market value of $125 billion -- but there may be things about it that are misunderstood. Among them is just how badly the business will be hurt by being so late to the game designing energy-efficient chips for tablets and smartphones, how capable the company is with its better than $9 billion net cash hoard to catch up, and how committed the company is to rewarding shareholders via dividends and share repurchases.

With regards to the first two issues, Intel's painful lack of foresight has been ARM Holdings' (Nasdaq: ARMH  ) gain and the stocks have the divergent performance to prove it. ARM is up more than 400% over the past 24 months, while Intel is up just 50%. Although ARM currently dominates the mobile and tablet chip space with its designs, Intel has also benefited from the spread of handheld technology. That's because its chips are used in the relevant servers.

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 (Nasdaq: MSFT  ) opting to let its new operating system run on other chips, there is also a threat to Intel's core business.

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 (Nasdaq: AAPL  ) , there's now significantly more competition in the casual gaming niche -- whether handheld or at home. But if Nintendo's new system can produce 15% to 20% growth for the company in 2012 or 2013, the stock seems like a bargain. Yet even if it can't, Nintendo has more than enough cash to see it through to the next system replacement cycle. Of course, then all of the cards will be riding on the hopes of another hit.

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 (NYSE: CCSC  ) -- a growing quick-serve restaurant chain in China -- is either a regional one-hit wonder and worth much less than its current $17 share price or a nascent national brand in China ... and therefore worth much more. I don't, however, know which. That's because nearly 90% of open stores at the end of 2010 were located in the company's home markets of Chongqing and Sichuan. And while the company has started expanded into new territories, I think it will take a year to get a sense for just how well the brand, concept, and food travel into new territories in China.

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 (NYSE: MCD  ) for every 22,000 people. Of course, China is not as wealthy as the U.S. on a per capita basis and there is more competition there today in this industry than when McDonald's was growing in the U.S., but if there was one Country Style Cooking for every 22,000 people in China, then the company would have more than 63,000 locations.

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.

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.


Read/Post Comments (9) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 19, 2011, at 11:44 AM, AdamFromPA wrote:

    Very bad timing with regard to CCSC. Its shares are down ~28% today, trading at about $12, not $17

  • Report this Comment On May 19, 2011, at 11:52 AM, TMFMmbop wrote:

    Yes, earnings showed slowing comp growth and some trouble managing expenses. Both datapoints would be negatives with regards to the company being able to become a successful national brand. Again, though, I think it will take a year or so to really get a sense of this. The addition of the new exec from MCD may be management trying to solve its growth pains.

    Incidentally, it's worth less than $12 if it really can't get outside Sichuan.

    Tim

  • Report this Comment On May 19, 2011, at 12:29 PM, BlazerMania wrote:

    Tim,

    I'm all aboard the Intel train. Here's a link to the anlaysis that sold me...though that was when it was $20 a share last month. Still looks good though.

    http://boards.fool.com/1081/amateur-intc-analysis-29224368.a...

    Fletch

    Long INTC

  • Report this Comment On May 19, 2011, at 1:15 PM, David369 wrote:

    BlazerMania,

    Good analysis you pointed to. I figure with all the PhDs and money INTC has to come up with something to catch up or at least hold their own. They claim to have a "revolutionary" new 3D transitor coming out. Well, every company has "revolutionary" new products but I don't think Intel would say that lightly. My thinking was if it only holds what it has there is the dividend, which is nice. If it really is a "revolutionary" new chip, might be some pretty nice growth. I'm in for a year or two to see what happens with Intel, very low downside.

    Thought about CCSC but decided MCD or YUM would be a safer bet even if less profitable regarding eating habits in China. CCSC is too many unknowns for me to feel good about it. If I have to worry about my investments and check them everyday to reassure myself they are ok, then the worry is not worth the possible profit. Yeah, I could do a stop-loss but if my faith in the business is that low why invest in it to begin with.

  • Report this Comment On May 20, 2011, at 2:13 AM, dadoudou wrote:

    CCSC in profit and expanding rapidly in Hunan and Shanxi, but not well in Shanghai due to different eating habits. Its traffic is much higher than neighbouring MCD or KFC in most locations, and its standardization is also very good, the problem now is inflation.

  • Report this Comment On May 20, 2011, at 8:14 AM, David369 wrote:

    I would expect CCSC to have higher traffic than MCD or KFC. I would think they would be cheaper. Sort of like us going to eat at MCD vs Outback. MCD maybe once a week and Outback once a month. I get the impression the MCD and KFC are for "special occasions" as they probably (my guess) cost more to eat there and are newer/different.

    I wonder if Shanghai is more "worldly & richer" and maybe the middle class go to Outback (or whatever is the same type place) resturants there? That might be why CCSC isn't doing as well there.

  • Report this Comment On May 20, 2011, at 9:50 AM, TMFMmbop wrote:

    Hoping to visit a few CCSC locations in different cities to get a better sense of foot traffic when we visit China in June. Thanks for the scuttlebutt.

    Tim

  • Report this Comment On May 20, 2011, at 8:01 PM, trollzindawoodz wrote:

    What is JAMN going to do ? i

  • Report this Comment On May 21, 2011, at 9:02 PM, lowmaple wrote:

    Well you really can't extrapolate 22000 in China as the middle class though growing is not anywhere near it's total population but I would consider maybe 6000 if it is a success.

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