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The eleventh year of the twenty-first century was not particularly kind to share market investors.  Beginning with flooding in Australia, the world watched as one worry after another fell on investors with a regularity approaching the precision of a Swiss watch.

The Japanese tsunami and earthquake was soon outmatched by the growing realisation that the debt crisis in Europe was deeper than most had imagined.  Then there was the crescendo of recessionistas and perma-bears warning of a double-dip recession in the United States.  The risk of a US default on its debt payments was followed by an historical first – a downgrading of US debt.

There was more than enough bad news out of the US to satisfy any doomsday predictor, but most experts agree that the event that really set the world investing community in full retreat was the August unemployment report from the US Department of Labor indicting zero job growth for the month.  

As you probably know, that lagging data was later revised upward and since then we have seen a steady stream of moderately positive economic data coming from the US.  However, it was not enough to stop the hemorrhaging of worry about the situation in Europe.  Despite this, the US S&P 500 index finished 2011 essentially flat, losing only 0.04%.

Other countries did not fare so well.  The ASX 200 was down 14.5% with Europe and Brazil both down 18% and China 20%.  The MSCI Global Index (Morgan Stanley Capital International) showed stocks losing 8% globally.  None of these statistics tell the real grueling story of 2011 – volatility.  A 2% move – up or down – in a major index like the S&P 500 is significant and that happened on 35 days in 2011!

As most of us approach investing in 2012 with fear and trepidation, the news out of the US continues to put to rest the double-dip recession fears.  On 10 January 2012 the United States Federal Reserve Board released its review of economic activity at the close of 2011 and reported continued growth, with the exception of the housing market.  One Regional Fed President predicted 2.5% GDP growth for 2012, up from 1.75% in 2011.

The Fed report confirmed the moderately positive tone of the majority of 2012 analyst forecasts and predictions.  The US has had nine consecutive quarters of slow and steady GDP growth, although some regard it as anemic at best.  Nevertheless, it is still positive growth on an improving trend upward.  The ISM (Institute of Supply Management) says business activity expanded at the fastest rate in seven months in the Chicago Region, the nation’s heartland.  The European situation drones on and is sure to fuel the volatility fires, but it appears the fear of a US recession is now in the rear-view mirror.  

The value of the Australian dollar makes US Stocks attractive to Australian investors and there are bargains to be had there, as well as solid safety stocks at attractive prices.  Here is a table of 8 US companies to consider.  The common characteristic is that each of these companies is on at least two separate analyst “Stocks to Buy in 2012” lists.  The table shows their 52 week highs and lows, current share price, and the % the current share price is below the 52 week high.

CompanyCodeSector52 Wk High/LowCurrent Share Price% Below High
AlcoaAABasic Materials18.47/8.459.63-47.71
Capital OneCOFFinancial56.26/35.9447.71-15.2
Conoco PhilipsCOPBasic Materials81.8/58.6572.01-11.97
FordFConusmer Goods18.97/9.0512.07-36.37
Corning GlassGLWTechnology23.43/11.5114.32-38.88
HalliburtonHALBasic Materials57.77/27.235.38-39.96
MicrosoftMSFTTechnology29.46/23.6527.72-5.91
Wells FargoWFCFinancial34.25/22.5829.62-13.52

 

There is truly something for every kind of investor on this list.  Those unduly rattled by the 2011 volatility looking for a safe haven can find one in the venerable Blue Chip Microsoft.  Alcoa, Ford, Corning Glass and energy services provider Halliburton have all been beaten almost senseless over the course of 2011, as evidenced by the percentage drop from their 52 week highs.  Every share in the table is a solid US Blue Chip stock worthy of consideration.  They deserve a look not simply because they have underperformed the S&P 500 in terms of share price.  All have growth potential for the future and some solid performance numbers for the past despite the market downturns.

As you know, bargain hunters look for a Price Earnings Ratio under 15 and preferably under 10.  A Price/Earnings Growth Ratio under 1.0 spells a potential bargain and dividend yield provides a margin of safety.  If you restrict your investment thinking to share price drop, Conoco Philips might not make your list, yet value guru Warren Buffet is loading up on COP shares.

Here is another table of numbers looking at valuation and performance measures for the eight shares US brokers are keen on.

CodeP/EP/EGROEDividend YieldCurrent Share PriceBook Value per Share
AA10.22.21.96%1.3%$9.63$13.23
COF6.2.910.33%.4%$47.71$58.2
COP9.21.917.34%3.7%$72.01$45.98
GLW6.8.820.38%1.6%$14.32$12.25
HAL11.9.419.21%1.02%$35.38$11.39
MSFT10.1.944.84%2.5%$27.72$6.64
WFC10.4.610.53%1.4%$29.62$22.37

 

Alcoa (AA)

As a leading commodities provider, Alcoa had a rough year.  However, world share markets were buoyed by the 2012 outlook Alcoa issued in their 2011 financial reporting on 10 January, 2012.  They see growth in both aluminum demand and higher prices in the coming year.

While not enough to calm some skeptics, consider that at a share price of $9.63, Alcoa is actually trading below its book value per share.  

Capital One (COF)

Although the US financial sector was the worst performer of the year in 2011, some analysts have turned bullish on certain financial stocks and in the early days of trading in 2012, the sector is rising.  Capital One was dragged down with the sector despite the fact in had little involvement in or exposure to the financial practices that contributed to the GFC.  

Right now the shares are trading below book value, which is a rare occurrence in share market investing.  Both the P/E and the P/EG shout “value!”  In the US, Capital One is seen largely as a credit card provider and their recent acquisitions of ING and HSBC’s US credit card business bode well for their future.  Their fundamentals are solid and their earnings performance of $6.01 per share makes them one of the best in class in US financials.

There is still a high level of risk in US banks due to uncertainty about exactly how exposed US institutions are to European banks.  However, if you want to take a gamble on this beaten down sector, another stock to consider is WFC (Wells Fargo).

WFC is one of the six largest banks in the US and is one that stuck to the basics of banking throughout the crazed run up to the GFC – they took in deposits and made loans, avoiding the derivatives and default swap markets.  This is another US company on Warren Buffet’s buy list.

Ford (F)

Ford managed to survive the GFC without government assistance and in the wake of the Toyota recall fiasco in the US may finally be getting recognition for the vastly improved quality of its cars.  They have excellent management and are poised to enter the electrical vehicle market within a year.  Their low P/E and P/EG are good signs but the best evidence of their transformation is the recent announcement that they are reinstating their dividend.

Corning (GLW)

Although Corning is best know for its glass business, it really is a supplier of a variety of products for the technology sector, including fiber optic and spun glass cabling.  If you are reading this from your Smartphone, chances are the screen is glass from Corning.  Their Gorilla Glass is becoming the industry standard for tablet computers as well as Smartphones.  The company is already the dominant screen provider to the High Def television world and Gorilla Glass for televisions is on the way.

Corning has had a rough ride with the global downturn but has still managed to post some impressive numbers – it has the highest ROE of any of the shares in our list.  Its single digit P/E and P/EG under one make it an attractive medium to long term hold.

Microsoft (MFST)

If safety is your concern, what could be safer than Microsoft?  They have more cash on hand than most countries and have shown recent signs of improved product placement.  Windows 7 and the X-Box Kinect were both well received and their acquisition of Skype raises some interesting possibilities about their interest in the Smartphone market’s video chat capabilities.  An early January rumor has them teaming up with Acer Corporation to introduce a Windows based mobile Smartphone called the Allegro.

Conoco Philips (COP) and Halliburton (HAL)

Oil explorer and producer COP and energy sector services provider HAL are both invested in something called the Bakken Field that is about to dramatically alter the global oil production picture.  The Bakken is a shale rock formation located in the American and Canadian west, primarily in North Dakota.

In January 2012 the world learned that oil production from the Bakken field in North Dakota rose above the level of Ecuador, the lowest OPEC producer.  The US Energy Information Administration says the US is now importing less than half of its oil, a dramatic drop from the two thirds level seen only two years ago.

In the category of “Believe It or Not”, Goldman Sachs says the US oil production could surpass Saudi Arabia by 2017 and may even supplant Russia as the world’s largest oil producer.

All this has been made possible by a controversial drilling technique know as Hydraulic Fracking.  This technique injects water and chemicals into the rock to fracture it and allow access to the trapped oil.  The Bakken story is one that bears watching and there are dozens of American and Canadian companies that stand to make fortunes from it.  COP and HAL are two US Blue Chips in the hunt.

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