Sasol vs. Marvel: Sasol

In the competitive spirit of college basketball's annual championship tournament, The Motley Fool brings you Stock Madness 2007! Our writers are making head-to-head arguments for their chosen stocks (but not necessarily investment recommendations -- this is, after all, a game), and you'll pick the winners with your article recommendations and Motley Fool CAPS ratings. Who will win the right to cut down the net? Let's tip things off and find out.

Whoever said "winning isn't everything" obviously wouldn't hack it on Team Sasol.

In the first round of Stock Madness, team captain Bill Mann led Global Gains pick Sasol (NYSE:SSL) to victory over energy titan ExxonMobil (NYSE:XOM). Bill again brought the pain in round two, this time down on Cisco (NASDAQ:CSCO). Spent from beating his enemies, Bill turned the reins over to yours truly to lead the team through the rest of the tournament. When I asked for advice for the game, Bill said simply, "Just win, baby." What a motivator!

Win we did, in a rout over brand powerhouse and Income Investor selection Diageo (NYSE:DEO). All of our opponents were great companies pitched by great writers, but in the end they were humbled by the fat profits, lean valuation, and intriguing growth possibilities presented by Team Sasol.

This week's matchup
I've got to be honest -- I am perplexed that Team Sasol's opponent in this round, Marvel (NYSE:MVL), a company whose net income has decreased three years running, has made it this far into the tournament. Don't get me wrong, I love Aunt May and the fat margins on intellectual-property licensing, but Marvel just can't hang with the likes of Sasol. Let me run these figures by you:

For those of you scoring at home, Sasol's 2007 forward price-to-earnings multiple is less than half of Marvel's. In addition to having superior returns on equity, or ROE, in 2006, Sasol also had a higher average ROE over the past three fiscal years.

Like dividends? Sasol offers a fat 3% yield, and its yield has grown at a compounded annual rate of 14.3% over the past five years. Maybe it's just me, but that 3% annual yield looks a lot tastier than the 0% payout Marvel shareholders must look forward to each year. Oh, and to top things off, Sasol even has a higher Motley Fool CAPS rating.

But I'm a lover, not a hater
Look, I'm not trying to hate on Marvel. The company has a treasure trove of intellectual property that any entertainment company would love to own. I simply believe that Sasol represents the better investment opportunity for the long run. Marvel's management has been steering the company away from its core competency of licensing its intellectual property by expanding into the riskier film production business.

Uncle Ben would say that with great potential profits come great potential liabilities. I say Uncle Ben should stick to cameo appearances. Think that just because Marvel has a cool stable of characters that it can do no wrong or that a bust of a Marvel film is impossible? Did you ever see Daredevil? How about Elektra? Well, no one else did, either.

Sasol's energy burst
Sasol has been piling on the profits for decades. In 2006, Sasol pulled in roughly $2 billion in net income from continuing operations on roughly $10 billion in revenues. The company, which operates in 30 countries and recently opened offices in China and India, sees its patented gas-to-liquid (GTL) and coal-to-liquid (CTL) technologies as potentially huge drivers of long-term growth.

The CTL technology, in particular, could catch on in the U.S. given our vast coal deposits, growing desire for energy independence, and sustained high energy prices. Sasol has been in talks with at least two governors of coal-rich U.S. states who have expressed an interest in its CTL technologies. Should the technology gain traction in the U.S., Sasol's shareholders likely would be richly rewarded.

I won't be so brazen as to gloss over the inherent risks of investing in Sasol. Its profits are inextricably bound to energy prices, and the company operates in parts of the world that do not feature the same level of geopolitical stability we enjoy here in the U.S. Sasol's profits have been so fat of late that the South African government is considering imposing an "excess profits"  tax on the company. I believe those risks are already priced into Sasol's shares. Trading at only 9.3 times 2007 forward earnings, these guys are just plain cheap.

People could tire of comic book movies in a couple of years, but energy isn't going out of style anytime soon. At the end of the day, Sasol's enormous profitability, compelling valuation, and the effective call option on the firm's GTL and CTL technologies scream "Stock Madness winner."

Does this stock deserve to move on to the next round? If you think so, simply follow this link and rate the stock to outperform in Motley Fool CAPS. If not, rate it to underperform. We'll tally your votes to determine which stocks will advance one step closer to the title.

Read our opposing article on Marvel, or see all of the other entries in this tournament.

Do you think you could pitch your favorite stock -- or ditch your least favorite one -- in less than 27 seconds? That's what we're doing over at Motley Fool CAPS. Check out our new stock videos.

Joe Magyer owns none of the companies mentioned in this article. Marvel is a Stock Advisor pick. In all seriousness, Ghost Rider has got to be the worst movie Joe has ever seen. The Motley Fool has a disclosure policy.