You May Never See this Opportunity Again
By Dr. Steve Sjuggerud
August 29, 2008
The world's greatest businesses are unbelievably cheap right now... Just about as cheap as they were when the greatest bull market in the history of stocks started in 1982.
I'm talking about businesses like ExxonMobil, Philip Morris (Altria), and American Express, for example.
These are "world-dominating businesses" as my friend Dan Ferris calls them. (Dan recommends these three – and other businesses like them – in his newsletter, Extreme Value.)
These are stocks that should always sell for a premium to the average stock. Their competitive advantages make it difficult to knock them off their thrones, and those advantages allow them to make higher profit margins. But right now, the "world dominators" sell at a discount to the market. It's crazy...
While we can't know exactly when the stock market bottom will arrive, I can tell you these things are an incredible bargain. The last time these stocks were this cheap was at the beginning of the great bull market. Each of these stocks gave investors triple-digit returns within a couple years of the bottom.
For example, ExxonMobil is selling for eight times forward earnings. It was selling for seven times in 1983. American Express is an even better deal today... It trades at a cheaper forward P/E ratio today than in 1983. And Philip Morris has a higher dividend yield today (at 5.6%) than it had at the stock market bottom in 1982.
These numbers are shocking. No wonder Dan is so excited...
Let's take a closer look at Exxon to really show you what I mean. Exxon makes incredible amounts of money even when oil prices are low. In the latest issue of Extreme Value, Dan considers the very worst of times: "If you remember nothing else about ExxonMobil, remember this: It earned 12% on equity the year oil bottomed just above $10 a barrel."
He goes on to say...
Oil is still over $100 a barrel. ExxonMobil has moved down in sympathy with other oil stocks as the price of oil has fallen from $140 to about $115 today. This makes no sense... Even with oil below $100 a barrel, ExxonMobil would still make money, as the low-cost oil producer.
Last year, ExxonMobil generated $37 billion of free cash flow, on a total starting capital of $122 billion, a return on capital of about 30%. It paid $7.6 billion in dividends, and bought back nearly $32 billion of stock. It's on pace to generate more cash and distribute more to shareholders this year. In the first quarter of 2008, it generated $17 billion of free cash flow, paid $1.87 billion in dividends, and bought back nearly $10 billion worth of stock...
At current prices, ExxonMobil is cheap enough today that it ought to produce an excellent total return over the next few years.
There are other Exxon's out there – world dominators at near-record low valuations. The "Nifty Fifty" Index, which I wrote about a few months ago, is loaded with them. We're just now starting to see an uptrend there. So this could be the start of something big in the world dominators.
And I should mention, Warren Buffett's incredible investment track record is significantly built on buying world-dominating businesses when they are cheap, and holding them for a long time.
As Dan has pointed out, the world dominators are cheap now. History shows if you buy them this cheap, you can make hundreds of percent returns.
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
Sign up today to read more investment ideas from Steve Sjuggerud.
|
 |
AN UNLIKELY CASE OF WORLD DOMINATION
Today's essay is all about "World Dominators"... the ExxonMobils, Wal-Marts, and Intels of the world.
These dominators get so large and powerful because they have the best management and highest profit margins. These three companies call another dominator home: the U.S.A.
Over the past six months, the returns in U.S. stocks have beaten those in Canada, China, Russia, Japan, and the U.K. The U.S. dollar has gained against the euro, the Japanese yen, the Canadian dollar, and the Australian dollar during the same time.
It's shocking to most folks... After all, we've been hit with some of the worst financial disasters in decades... the collapse of Bear Stearns, a wave of home foreclosures, and for all practical purposes, the bankruptcy of Fannie Mae and Freddie Mac. But as you can see, things aren't so bad in the good ol' U.S. of A.
6-Month Returns |
Major stock markets in U.S. dollar terms |
Major currencies vs. the U.S. dollar |
+2.5% U.S. Nasdaq |
+3.2% Brazilian real |
-5.8% U.S. S&P 500 |
-2.6% Euro |
-8.3% Canada TSX |
-2.7% Russian ruble |
-10.9% Brazil Bovespa |
-3.3% Japanese yen |
-11.4% Japan Nikkei |
-3.4% Swiss franc |
-13.4% U.K. FTSE |
-6.6% Canadian dollar |
-20.7% Russia RTS |
-7.6% British pound |
-43.1% China CSE 300 |
-8.4% Australian dollar |
|
|
|
 |
Caterpillar Inc. expects record sales this year as booming demand for construction and mining equipment in China and other emerging economies offsets weakness in its home U.S. market, its chairman said Thursday.
In Asia, Caterpillar has so many orders for heavy mining and power generation equipment that it is sold out of most items through 2010, he said.
The sales forecast highlighted the key role played by China and other emerging economies in driving sales for global companies at a time when demand in the United States, Western Europe and Japan is flagging.
Caterpillar, based in Peoria, Illinois, expects sales in China to top $2 billion this year, helping to push global sales to just over $50 billion, Owens said. The company is the world's biggest producer of construction and mining equipment and a major supplier of power-generation equipment. |
|
|
Eurasia Capital Management plans to increase the world's first Mongolia-focused fund fivefold to $100 million to tap economic growth fueled by the nation's mining industry.
Eurasia's hedge funds, which have about $200 million of investments across Central Asia, also expect to sell shares on London's Alternative Investment Market or Deutsche Boerse AG by next June, said Alisher Djumanov, managing partner of the Singapore-based firm. Proceeds would be used to start private- equity and property funds, and expand in Central Asia, he said.
Mining in Mongolia, which has reserves of coal, copper, gold and uranium, will spur "double-digit" economic growth rates over the next 10 years as commodity prices remain high, Djumanov said in an interview. Mining accounted for about two-thirds of Mongolia's exports last year, and foreign direct investment in the country rose more than 33 percent. |
|
|
