by James Brumley | June 6, 2012 8:36 am
I’m under no illusion that you’re not rolling your eyes every time you’re hearing the “this pullback is a buying opportunity” pep-talk now. Pullbacks suck, and nobody likes to catch a falling knife.
On the flipside, having lost and won more money in the market than I’ll ever admit to, I can verify that, yes, it’s pullbacks like the one we’re in the middle of now that do end up being great entry opportunities — they just don’t appear to be great until well after the recovery has begun.
With that on the table, it’s with great confidence — but without obliviousness to the current pain being doled out — that I want to explore some severely beaten-down foreign stocks that are ripe for a rebound soon. Why foreign names rather than domestic ones? Because I already talked about worthy beaten-down U.S. names back on May 16, and those picks still stand. Here’s a chance to diversify the falling knives you’re catching.
To be fair, Petroleo Brasileiro (NYSE:PBR) — or Petrobras — isn’t the only Brazilian stock just a few days removed from three-year lows. It’s one of the least deserving of such a punishment, though, and as such, it might unwind the 40% loss suffered during the past 12 months faster than many might expect.
See, although Petrobras’ bottom line isn’t bulletproof, it’s a heck of a lot more consistent than it gets credit for. Since 2006, per-share income has not rolled in under $2.53 (in 2007), and not higher than $4.30 (2008). This year’s estimate of $2.91 is understandably low after last year’s disappointing $3.08, but the fact of the matter is, the share price is the only thing proven to be vulnerable — not the company’s bottom line.
But what about the country’s economic stumble this year, along with China’s (which is a major trade partner with Brazil)? Those certainly are factors, but they’re factors that already are built into the price. From here, Brazil’s stimulus and China’s willingness to do anything to spur growth means Petroleo has more upside than downside to dole out.
Given its journey into new 52-week low territory thanks to the 24% slide since February, one would think Wipro Limited (NYSE:WIT) — an Indian technology service provider with a finger in several pies — is in serious trouble.
Also read: 4 Beaten-Down Names to Buy Now
While the stock has been beaten down since late last year on growth worries, Wipro still has managed to grow its top line — and maintain a nice bottom line — during that period. The net result is a share price of 21 times trailing earnings, and 15.5 times forward-looking earnings.
But can the company really achieve the anticipated 10% earnings growth rate this year and next, especially considering two big earnings misses in the past four quarters? Sure, thanks to the nature of the business. Wipro doesn’t have any technology that’s show-stopping (like, say an iPhone). But it does have hundreds of non-cyclical products and services that, when all the nickels and dimes are added together, make for a solid company.
One of the “ground zero” banks of Europe’s economic Armageddon is a buy? Yep. Think of Banco Santander (NYSE:STD) as the ultimate contrarian play, where you scoop up one of the world’s most-unloved stocks just pennies beneath the low prices seen in early 2009.
The bad news: Spain’s banks need somewhere between 40 billion and 100 billion euros to shore up its bad debt, which comes in the form of now non-performing loans, and of course, a decent dose of Greek debt. Things are so awful, the nation’s banking system is legitimately considering an outright credit freeze.
The good news: The EU just isn’t going to let that happen. The worst-case scenario from here is that the needed bailout money is found, the bad debt is written off on a GAAP basis but not on an operating basis, and Santander keeps on generating $90 billion in revs per year as if the crisis isn’t even happening. It’s the “don’t ask” move borrowed straight from the United States’ playbook. It’ll work there as well as it did here (which was pretty well).
Last but not least, China Telecom (NYSE:CHA) has been one of the hardest-hit names since last year, falling 37% from September’s cyclical peak, with nearly half that loss being taken since late February.
The bearish prod was founded on concerns of a slowdown in China’s economic growth — which, as it turned out, were somewhat merited. Those worries overestimated just how deep a slowdown in China would cut into personal consumerism, though.
Not unlike U.S. consumers’ newfound love with smartphones and wireless Internet, Chinese consumers are falling in love with their landlines (which are new for many users there) and mobile devices. For the same reason you wouldn’t give up your high-speed connectivity and mobile phone now no matter how tight the economy got, they couldn’t let go of their landlines, broadband and cell phones either.
The advantage that carriers like China Telecom have over American counterparts is that so much of the market there still is entirely untapped. Market penetration is happening faster than any broad economic slowdown could crimp it, which is why the company still is on pace for a fourth straight year of higher revenues and stronger earnings.
While it’s true that some — or even all — of these foreign names have more volatility to burn off, it’s also true that it’s easy to be penny-wise and pound-foolish. None of these names deserve to be trading where they are, and the market’s going to figure it out sooner or later.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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