The Olympics and Investing: The Awards Ceremony

And so it ended, and so it ends. Cue the German national anthem.

As the 2006 Winter Olympics wrapped up over in Torino, Germany came out on top, with the most gold medals, the most silver, and the most medals overall. While the world's athletes were battling it out on the ice and snow over in Italy, here at the Fool we were running a different competition -- matching the competing countries' companies against one another in an attempt to see which ones offered the American Depositary Receipts (ADR) most worthy of U.S. investors' dollars.

Life imitates art, and as it happens, investing imitated life. Over the past two weeks, I've reviewed 40 equity offerings from five top Olympic contenders: Italy, Germany, Sweden, Finland, and Norway. Today, it comes time to award the medals, and I'm giving the top two pedestals to Germany once again.

Let the awards ceremony commence.

The gold medal goes to .

BASF
(Level II ADR) 1 ADR = 1 Common Share

"What?!" I hear you shout. "A boring old chemical company is the best you can find for us in all of continental Europe?"

Well, yes and no. We hardly had time to review all of Europe in this competition, so it's entirely possible that there's a better home for your investment dollars to be found in France, Estonia, or Liechtenstein than in Germany's chemical king. But among the five countries I've reviewed over the past two weeks, BASF (NYSE:BF) looks the best. That said, I should also caution that just because I'm choosing BASF as my top European investment idea does not mean that you should, too. With this, as with the other medal winners, exercise due diligence before investing.

That disclaimer out of the way, here's why I've chosen BASF for the gold. To recap, BASF is the world's leading chemical company by sales, outstripping U.S. competitor DuPont (NYSE:DD) by a wide margin and Motley Fool Income Investor pick Dow (NYSE:DOW) by a slight one. At the same time, BASF doesn't trade at a premium consonant with its market dominance. The company's ADRs trade for just 11 times trailing earnings and 11 times trailing free cash flow. Measured against this year's projected earnings growth rate of 11%, the company therefore scores a PEG ratio equal to a perfect 1.0. Although long-term growth estimates are not available for BASF, the industry at large is expected to grow at a rate of 10.5% per annum over the next five years. I would expect a dominant company such as BASF to at least match, and likely exceed, the average growth rate for its industry.

To quote the Master, Warren Buffett: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." BASF's U.S. ADR program offers us the opportunity to buy this wonderful company at a textbook definition of "fairly priced." That's why I'm awarding BASF the gold.

The silver medal goes to .

Deutsche Telekom
(Level III ADR) 1 ADR = 1 Common Share

Given his druthers, Buffett would buy a wonderful company at a fair price before buying a fair company at a wonderful price. But once you own the wonderful company, I see nothing wrong in snapping up the fair company as well -- at a sizeable discount. That's why the silver medal goes to Deutsche Telekom (NYSE:DT), the largest telecom company on the Continent.

The company trades at an ultra-low PEG (its P/E of 8.2, divided by its projected earnings growth rate of 15%, scores a PEG of 0.55). Moreover, DT's reported earnings understate its true cash profitability. DT sells for just 6.6 times its trailing free cash flow, with FCF growth up strongly in the past few years.

Thus, in DT, we have a telecom player that's dominant in its home market, producing prodigious free cash flow -- and growing. Compare that with U.S. analogues like Verizon (NYSE:VZ) or AT&T (NYSE:T), and you'll see why investing in telecom -- in the correct market -- can still be a good move for U.S. investors. Verizon's 3% growth rate and AT&T's 8% don't inspire a lot of confidence in this Fool, especially when their stocks are priced at P/FCF ratios in the teens. But DT, selling for half the price of its U.S. peers but growing at several times their rates, convinces me that there's still room to profit in telecom. German telecom.

And finally, the bronze medal goes to .

Eni
(Level III ADR) 1 ADR = 2 Common Shares

Valuation tipped the scales in favor of our final medalist as well, if by a roundabout route. Italy's national oil titan, Eni (NYSE:E), is far smaller than some of its rivals around the globe. Counterintuitively, it looks to sport a premium valuation to those rivals, but that's only on the surface. Take a look at the chart below, and then I'll explain why I think Eni is the hidden value of the world's oil sector.

As you can see, on a pure P/E basis, Eni seems to be priced more richly than its major rivals. But what about the value of Eni's assets? The firm sells for the lowest price-to-book multiple of any of the firms named. And when you look at the amount of proven reserves it has to sell (measured by dividing the firm's market cap by its claimed barrels of oil equivalent), Eni's hydrocarbon assets are priced much cheaper than those of any of its competitors.

Take cheap assets and operating margins better than practically any other oil major in the world, and then mask them all behind an apparently too-expensive P/E, and Eni wins the bronze as a value in disguise.

And there you have it -- the end of the Olympics, and the end of our Investing Olympics as well. With luck, we've given you enough international investing ideas to keep you busy until the Olympics start up again in Beijing in 2008. But if not, keep coming back to Fool.com, where we're always watching for superior investing ideas -- wherever they might be found.

For more on Germany and the Olympics, checken Sie out:

• 1,001 Teutonic Nights, Part 5

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool's disclosure policy stands alone on the gold medal platform.