US share tips: Three big-picture bargains

By Author Charlie Gibson Jan 25, 2006

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Over the long term, economies may tend to grow and the world become materially better off, but there are often cyclical downturns on the way to rising prosperity, says James Grant in Forbes. And when these downturns happen – as one may soon, given the myriad concerns about global economic imbalances – the markets tend to get hit too.

But that doesn’t mean you have to lose money. Instead, you can protect yourself by making sure that when you buy equities, you buy only bargains. The bad news is that bargains are “all too scarce” in today’s market. But on the plus side, quasi-bargains – “fine companies at almost-cheap prices” – do exist.

Bunge (BG, $58.70) is a case in point. The largest producer of fertiliser in the world’s fastest-growing market (Brazil), Bunge is “a pure play on earthly betterment”. What’s more, it’s well capitalised and growing rapidly: in the three years between 2001 and 2004, profits advanced by 52% a year. More recently, it has suffered from the “unexpected strength” of Brazil’s currency and “a drought-induced agricultural slump”. Still, 13.8 times forward earnings is “an obviously cheap entry point”.

Another “investment in global prosperity” is Indian vehicle maker Tata Motors (TTM, $14.45). In 2005, Tata suffered from a combination of high raw-material costs and high fuel prices, which reined in sales growth. But with India now somewhere near where the US was in the 1950s at the dawn of the construction of the US interstate-highway system, in car terms the scope for growth is clearly huge. Investors can buy Tata shares for just 14.3 times forward earnings.

The big picture is the rationale for investing in China too, says Will Swarts on SmartMoney.com. The “natural” sector to consider in this respect is telecommunications. China has “the biggest subscriber market for mobile phones on the planet”.

On the downside, the state still retains a stake in the four largest fixed-line and wireless companies in the country, which “limits the upside and distorts valuations”. On the upside, however, says Frederick Jiang of Waddell & Reed, it means that companies such as China Mobile (CHL, $25.00) “face very little competition and have monopoly pricing power”. According to Yahoo, China Mobile trades on an inexpensive forward p/e of just 14.6 times.

Published in Tips & advice | More articles by Charlie Gibson

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