2 Burgeoning Global Blue Chips

08/23/2011 7:30 am EST

Focus: GLOBAL

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

Whenever there is a global readjustment in the markets, it’s time to build your wish list and look for bargains in great multinational companies, says Paul Goodwin of Cabot Wealth Advisory.

While I was screening stocks and looking at charts to pick the most-recent stock for Cabot China & Emerging Markets Report, I noticed that the recent correction had created some great opportunities for value investors.

Ordinarily, this wouldn’t interest me much. I admire the cool patience of value investors, but value stocks can sometimes require holding on for years to see results.

But value investing is a lower-risk strategy, and value investors can make sensible investments even when the markets are in a foul mood.

So here are two emerging-market stocks with market caps in the $10 billion range, excellent P/E ratios, positive earnings histories, and stories that make sense. They may be just what you need to keep a little skin in the game during these dark days.

Companhia Siderurgica Nacional (SID)
This Brazilian steel maker has all the advantages that a former state-owned company can enjoy, including its own iron-ore mine, its own hydroelectric power supply and its own seaport and connecting railroad facilities.

The company’s revenues dipped in 2009, but seven quarters of increases (including a 29% gain in the second quarter of 2011) mark a convincing turnaround...not to mention the 48% earnings bump in the latest quarter, with a healthy 26.3% after-tax profit margin to boot.

SID peaked at $21 (split adjusted) in March 2010, and has been going over the falls since early April. Now trading below $9, SID sports an attractive trailing P/E ratio of 7 and a forward P/E of 4.

Not bad for a solid company that just posted record net revenue on August 2, and whose stock pays a handsome dividend (the forward annual dividend rate is 8.1%). Time to steel up for the long run?

Tata Motors (TTM)
The Indian auto and truck maker has been showing some real expansion chops.

Tata has traditionally made and sold boring trucks, buses, and cars with all the zip of a motorized bathtub. But an aggressive internal development program has yielded the Tata Nano, a fully enclosed four-passenger car that’s the cheapest in the world, and represents the first step onto the automotive ladder for many Indians.

There are also development programs for electric and hybrid cars, and moves into foreign markets. Tata has also staked a claim to the upper end of the market with its takeover of the Jaguar and Land Rover marques.

Tata Motors is sensitive to economic trends, and India is as subject to hiccups as the rest of the world. But TTM—after a monster run from $3 in early 2009 to $38 last November—has now drifted below $16 again, a price that should put a spark in many value investors’ eyes.

The stock trades at an attractive trailing P/E ratio of 6, and the forward P/E is 5. The stock’s trailing annual dividend yield is 2.4%.

Obviously, these stocks could both fall even lower if the market remains in its present wheezy state. But the appeal of value investing is that your longer investment horizon insulates you from the storms and lightning of short-term market moves.

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