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Prudent Picks from Around the World

10/14/2014 10:00 am EST


John Buckingham

Editor, The Prudent Speculator

John Buckingham, noted value investor and editor of The Prudent Speculator, recommends that investors maintain a highly-diversified portfolio. Here's a look at a trio of buy recommendations from Australia, Sweden, and Italy.

BHP Billiton Ltd. (BHP)

Australian conglomerate BHP is one of the world's largest miners, with diverse businesses that include aluminum, coal, copper, iron ore, mineral sands, oil, gas, nickel, diamonds, uranium, and silver.

Despite some weaker pricing power in global commodity markets, BHP was able to keep productivity and volume high while completing six major projects in the last two quarters.

The company also chipped away at its net debt, reducing the amount outstanding by $1.7 billion to $25.8 billion and increased its semiannual dividend payment by 4%.

Although shares tumbled in price following BHP's de-merger announcement in late August, we believe that the sum of BHP's parts is still greater than the whole.

The simplification of the company's portfolio should allow for better allocation of capital and resources. We like that BHP continues to make efficiency improvements in its core businesses while managing operating cash flow. BHP currently yields 3.4%.

LM Ericsson (ERIC)

LM Ericsson, a Swedish company, is a leading international supplier of network equipment and related services to telecom operators for the handling and transmission of voice and data.

Although the space is competitive, we believe Ericsson is in a solid position to take advantage of the increasing popularity of smartphones. We think ERIC has differentiated itself by focusing on network performance and the overall quality of its networks.

As the battle for wireless network supremacy in the US rages on-with carriers fighting for the best network-ERIC should continue to benefit.

To us, this theme seems similar in other parts of the world. In our view, given its expertise, there is reason to believe that ERIC will earn a sizeable chunk of the hardware upgrade spending.

Still-present concerns about compressed margins for some developed-market network projects are largely offset, we think, by Ericsson's solid balance sheet, strong cash flows, and attractive 2.4% yield.

Eni (E)

Rome-based Eni is a diversified-oil major with vertically integrated businesses focusing on international exploration and production (E&P), natural gas, refining, power generation, and chemicals.

Eni continues to face near-term headwinds as upstream project delays and difficult downstream markets have disrupted normally solid cash flow generation.

That said, with a new CEO in place, management is more determined than ever to aggressively curtail downstream issues, reduce costs, and unlock potential value by divesting certain assets. We are encouraged by Eni's recent exploration successes and depth of its upstream project portfolio.

Additionally, we have long liked the company's strong global relationships and proximity to Africa and the Middle East, as it works to win new projects in these often difficult but energy-rich regions. Eni shares also offer investors an attractive 4.3% dividend yield.

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