NEW YORK – Recent events may have taken a little of the luster off emerging-markets plays. In a December 2001 report, the International Monetary Fund identified weak commodity prices (namely oil), tourism declines and other problems threatening the outlook for developing economies. For 2002, the IMF predicts private direct investment in emerging markets will drop 12% versus 2001.

The picture, however, isn’t all gloomy. A notable bright spot is China, whose economy the IMF expects to expand 7% in 2002. India and Pakistan, if they can avoid a war, also show promising growth prospects.

Another encouraging sign: Argentina’s economic problems seem contained within its borders for the moment. “This is a very different world from 1997,” according to Peter Hooper, chief economist at Deutsche Banc Alex. Brown. “I think people were better prepared this time around,” says Hooper. Along with a new U.S. attitude of engagement, Hooper thinks the global effort by central banks to ease interest rates will help emerging economies.

Robert N. Phillips Jr., chief investment officer at Walnut Asset Management ($700 million in assets), looks for long-term secular trends with what he calls a “capital-spending tailwind.” One such theme: the development of infrastructure in emerging economies.

“Lesser-developed countries are looking to get into the game,” he says, “and to do that, they’re going to have to develop their roads, highways, bridges and communications systems.”

Full story at Forbes.com

Over the past six months insiders at chicken giant Tyson Foods have purchased 37,000 shares of their company, versus insider sales of 3,500 shares. John McMillin, Prudential Securities equity analyst, thinks the net buying reflects positively on Tyson’s plans to acquire beef processor IBP. “Insiders clearly think the bet on IBP is a good one,” he opines.

Wall Street hasn’t shared in that optimism. At a recent $11 Tyson’s stock is not much above book value and is well off a five–year peak of $26.

Full story (reg. required) at Forbes.com

NEW YORK – For those looking to invest overseas, the Forbes Platinum 400 may be a good place to start. While the list sets tough requirements for qualifying companies, there are none regarding geography. The list is dotted with foreign firms that have a significant presence in the U.S. market and whose shares are either listed in the U.S. or trade here as American Depositary Receipts (ADRs).

Example: Holland’s Royal Ahold (nyse: AHO – news – people ), which runs supermarkets and food service operations in 27 countries. The $26 billion (market value) company made the list thanks in part to its five-year (annualized) sales growth of 30%. Platinum rivals Kroger (nyse: KR – news – people ) and Safeway (nyse: SWY – news – people ) managed just 13% and 15%, respectively.

Full story at Forbes.com

Investing in foreign stocks comes with certain hazards, including currency fluctuations and uncertainties about non-U.S. accounting (see previous story). Sometimes those risks are worth taking.

Erik Granade, lead manager of the $102 million (assets) Sentinel World Fund, looks for foreign blue chips trading cheaper than U.S. competitors. He’s interested in consistently profitable companies with market capitalizations greater than $1 billion, at least five years of audited financials and lower multiples than their U.S.–based competitors.

Granade cites HSBC Holdings, the $674 billion (assets) financial conglomerate with a base in London and offices all over the globe. Founded in 1865 by an enterprising Scot living in Hong Kong, the former Hongkong & Shanghai Banking Corp. has expanded its footprint with a series of acquisitions, notably Republic New York in 1999 and Crédit Commercial de France in April 2000.

Full story at Forbes.com

NEW YORK – One of the seemingly undervalued stocks in this year’s Forbes Platinum 400 list is Golden West Financial. This Oakland, Calif.-based holding company owns both Atlas companies, which manage mutual funds, and World Savings, a savings and loan concern with $58 billion in assets. Golden West has been a Platinum List member for the past two years.

Full story at Forbes.com

NEW YORK – On a 12-month basis, the consumer price index has yet to flip over to the deflationary side, but prices are falling throughout the economy. This bodes poorly for hard-asset companies, whose business lies in timber, gold and other resources susceptible to price declines.

So why should investors give natural-resource companies a second look this time? It’s hard to believe now, but the recession won’t last forever. An economic stimulus package is working its way through Congress, the Federal Reserve has pumped liquidity into the economy via 11 cuts in short-term interest rates, and corporate overhead has been dramatically reduced. A few months from now, the bad times could be a faint memory. If so, the fortunes of companies in the business of hard assets are likely to improve.

Of those companies, timber concerns look like worthwhile long-term investments, according to Todd Perkins, analyst with Denver-based Berger Funds. One such example is Jacksonville, Fla.-headquartered Rayonier (nyse: RYN – news – people ), which is held by the Berger Small Cap Value Fund ($1.3 billion in assets).

For hard-asset companies, Perkins likes a reasonably healthy balance sheet, with debt preferably no more than 50% of total capitalization. He also prefers companies with positive free cash flow, which is cash from operations minus capital expenditures and dividends paid. Cash flow from operations refers to net cash provided by core business activities.

Rayonier, with $8.52 in free cash flow per share over the past 12 months, fits this profile. The stock, trading 4% off its 52-week high, sells for six times free cash flow and 22 times estimated 2002 earnings per share. Rayonier yields 3%.

Full story at Forbes.com

The S&P 500’s 10% post-attack rally has cheered investors. But what if this is a bear trap? A sustained rally will require a rebound in profits, and that may not happen until 2003. Although the consensus forecast from Thomson Financial/IBES calls for a 15% rebound in S&P 500 profits in 2002, Stuart A. Schweitzer, global investment strategist at JP Morgan Fleming Asset Management, predicts profits will be flat or down 5% next year, to $42 per S&P 500 unit. That’s before writeoffs (and accounting changes), which total $18 per share for the 12 months ended September.

If the market continues its decline, Chuck D. Zender, who comanages $18 million in the all-short Leuthold Grizzly Bear Fund, will be prepared. His advice: The 300 largest stocks are usually good candidates for finding overvalued companies. He is particularly suspicious of companies trading at more than 30 times 2002 estimates.

Full story at Forbes.com

NEW YORK – By December 2000, it was clear that the market for IPOs was headed for a long winter. In that month, only 15 companies went public versus 33 in December 1999.

At the time, market watchers consoled themselves with the thought that the slowdown would improve the quality of the deals making it past the starting gate. And in fact, of those 15 new issues from December 2000, eight have outperformed the S&P 500 since their debut. Six now trade above their opening price.

A year later, the market for new issues is still in the doldrums. Deal volume remains thin, even for a seasonally quiet December. Just ten offerings are scheduled for December 2001.

As for deal quality, the December schedule features established companies in aluminum, defense, food service and insurance. While these sectors don’t promise explosive growth, Randall Roth, senior analyst at Renaissance Capital, predicts significant demand for these stocks, as investors look for reliable names at reduced prices.

Example: Prudential Financial, a Newark, N.J.-based insurance and financial services concern with $606 billion in assets under management. The firm’s IPO, which will convert it from a mutually held company to a public one, is set to price on Dec. 13.

Full story at Forbes.com

NEW YORK – The wrangling in Congress has grown intense over the economic stimulus bill, officially entitled the Economic Security and Recovery Act of 2001. The bill, amending certain sections of the tax code, narrowly passed the House of Representatives in late October. It has been under consideration in the Senate since early November.

While some have warned that deadlock between Republicans and Democrats over the bill’s scope threatens to derail the legislation, it’s a safe bet that neither party wants to be perceived as impeding an economic recovery. Thus, the chances of passage before year-end remain substantial.

Within the proposed law, one measure likely to pass is the “depreciation bonus.” Over the next three years, this provision entitles companies purchasing equipment to an accelerated first-year depreciation allowance, equal to 30% of the purchase price of the asset. Andy Laperriere, a Washington-based analyst with brokerage ISI Group, thinks that this provision has a good chance of being included in the final package.

Laperriere and his ISI colleagues provide the following thumbnail example: Suppose a business buys a $1 million piece of equipment, depreciable over years. Under a straight-line depreciation schedule, the business would write off 20% of the equipment’s cost, or $200,000, in the first year.

With the new law in place, the business would be able to deduct 44%, or $440,000, in the first year. How? First, the business deducts the bonus, or 30% of the purchase price. In this case, $300,000. Next is a deduction for the amount already allowable as a depreciation from the remaining equipment cost, which in this case is $700.000. A 20% depreciation write-off of $700,000 comes to $140,000.

For companies investing in new assets, the effect of the new provision will be to boost cash flow and provide an up-front break on taxes. “If you do a present value calculation,” explains ISI’s Laperriere, “it’s worth more to deduct now than it is to deduct five years from now.”

Houston-based Apache (nyse: APA – news – people ), an independent oil and gas exploration-and-development company, is in a capital-intensive business. In the latest twelve months, depreciation expenses comprised 63% of Apache’s cost of goods sold. Given the calls for diminished reliance on foreign oil, drillers like Apache may well see demand for their services rise–along with their need for new equipment.

Full story at Forbes.com
http://www.forbes.com/markets/2001/11/19/1119sf.html

The economy is struggling and the stock market is a mess. If you are looking for bargains churned up in the turmoil, you may have to set your computer to screen for companies trading at low multiples of their earnings.

That’s not a bad way to look for cheap stocks, but it’s not the only way. Here are two other approaches to the notion of low-multiple investing: price to cash flow and enterprise multiple.

The “cash flow” we are talking about here (be careful-the phrase has three entirely different meanings on Wall Street) is earnings plus depreciation and amortization. In some industries, like newspaper publishing, it is perhaps a better measure of profitability than net income; in many others, like cement making and railroads, it is merely a supplemental measure. (Although amortization may be nothing but a bookkeeping entry related to goodwill, depreciation tends to reflect real wear and tear on equipment and buildings. As investor Warren Buffett likes to say, capital expenditures are not paid for by the tooth fairy.) In the table we picked out companies trading at cash flow multiples that are low in relation to historical norms.

Full story at Forbes.com