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The Cheapest Stocks in the World's Cheapest Sector

By Brett Eversole
Monday, September 30, 2013

Contrary to what you might see in the mainstream media, the world's largest stocks are still cheap.
 
That might surprise you... A lot of the biggest blue chips have delivered tremendous gains over the last two years. Home Depot, for example, is up 136%. Visa is up 118%.
 
But the 189 companies with a market value of $50 billion or more trade at a median 12.9 times forward earnings. That's not expensive. And there's one group of mega-cap stocks that's dramatically cheaper than the rest of the pack.
 
Let me show you...
 
As you dig into the value in large-cap stocks, one sector jumps out... energy companies.
 
Of the 10 major sectors, energy stocks are the cheapest by nearly every measure. Take a look...
 
Sector
Price/
Earnings
Fwd P/E
Price/
Book
Price/
Sales
Div Yield
Consumer Disc
20.8
17.0
3.9
2.1
2.0%
Consumer Staples
19.1
17.0
4.4
3.2
2.6%
Financials
11.9
10.7
1.2
1.6
2.9%
Health Care
19.6
14.2
3.7
3.3
3.1%
Industrials
18.2
14.5
3.6
1.6
2.3%
Technology
19.2
14.4
3.8
4.5
1.8%
Materials
16.7
11.3
2.3
1.8
3.9%
Telecom
14.1
12.7
2.1
1.5
3.9%
Utilities
29.4
12.2
1.0
0.5
6.9%
Energy
10.5
9.1
1.4
0.9
4.2%
Average Mega-Cap
16.4
12.9
2.4
2.0
2.8%

The world's largest energy stocks trade for just 9.1 times next year's earnings estimates. That's a 29% discount to the entire group... and a 28% discount to the 10-year average price-to-earnings ratio (P/E) on U.S. energy companies.
 
They also pay hefty 4.2% dividends. That's well above the 2.8% average and second only to utility stocks (which most investors buy solely for income).
 
If you look to energy stocks located in emerging markets, the value gets even better... particularly in Russia.
 
Russia's three mega-cap oil companies are Gazprom, Lukoil, and Rosneft. It's hard for U.S. investors to buy Rosneft. But Gazprom and Lukoil trade "over the counter." In other words, they don't trade on the NYSE or Nasdaq... But you should be able to buy them through your broker. And they're trading at just 2.8 and 4.4 times earnings, respectively.
 
That's as cheap as any stocks on the planet.
 
I know that the idea of putting money in Russia is scary. But at those prices, nearly everything can go wrong and investors can still make money.
 
In short, energy stocks are now the cheapest group of large-cap stocks on the planet. And Russian energy companies are the cheapest energy companies. They're the cheapest of the cheap.
 
Investors looking for value should consider energy stocks in general... and Russian energy stocks specifically. These stocks could rise 50% if oil prices go nowhere... and they'd still be cheap.
 
Good investing,
 
Brett Eversole




Further Reading:

Legendary investor Jim Rogers is also buying Russian stocks. In fact, his top idea right now is Russia. "If you go there and you invest, you will find opportunities," Jim says. "Everybody hates Russia for many good reasons... That's usually a place that you should look." Learn more about investing in Russia here.
 
Last week, Brett showed readers another great value in emerging markets: "The last time Brazil was this cheap, in 2003, EWZ returned over 100% in a year. And I believe we're in the early innings of a similar move today. I wouldn't be surprised to see EWZ increase 50%-plus over the next 12 months." Read more here.

In The Daily Crux
Market Notes
Natural gas infrastructure builder Chicago Bridge & Iron breaks out to a new all-time high... shares are up 76% in 12 months.
 
Media giants are quietly booming... 21st Century Fox, CBS, and Viacom are all up 50%-plus over the past year.
 
Biotech boom sends Celgene to a new all-time high.
 
Debt-laden retailer J.C. Penney plunges to a new 12-year low... down 63% over the past year.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1691.75 -0.4% +16.9%
Oil (USO) 36.96 -0.3% +8.2%
Gold (GLD) 128.97 +0.9% -25.2%
Silver (SLV) 20.96 +0.2% -37.6%
U.S. Dollar 80.31 +0.1% +0.5%
Euro 1.35 +0.1% +4.6%
Volatility (^VIX) 15.46 +10.0% +4.2%
Gold Stocks (^HUI) 230.31 -0.2% -55.4%
10-Year Yield 2.62 -0.8% +59.8%

World ETFs
Symbol Price
Change
52-Wk
Japan (EWJ) 12.02 -0.7% +30.5%
Israel (ISL) 15.35 -0.8% +25.7%
USA (SPY) 168.91 -0.5% +19.3%
China (FXI) 37.65 -0.7% +11.5%
Taiwan (EWT) 14.03 -0.5% +6.7%
S. Korea (EWY) 62.19 -0.4% +4.9%
Singapore (EWS) 13.49 +0.1% +2.3%
Canada (EWC) 28.43 +0.1% +0.4%
S. Africa (EZA) 63.44 -1.9% -3.0%
Russia (TRF) 14.72 -1.0% -3.2%
Lat.America (ILF) 38.48 -0.7% -8.1%
India (IFN) 19.03 -2.4% -8.6%

Sector ETFs
Symbol Price
Change
52-Wk
Alt. Energy (PBW) 6.28 +0.8% +51.1%
Biotech (PBE) 35.25 -0.1% +45.5%
Media (PBS) 23.39 +0.1% +41.9%
Defense (PPA) 27.72 -0.2% +41.6%
Retail (PMR) 33.59 -0.6% +36.0%
Transportation (IYT) 117.88 -0.7% +35.5%
Industrials (IYJ) 90.90 -0.6% +30.6%
Construction (PKB) 20.36 -0.8% +28.9%
Consumer Svcs (IYC) 110.19 -0.1% +28.5%
Financials (IYF) 73.90 -0.2% +28.2%
Health Care (IYH) 107.16 -0.1% +28.0%
Semis (PSI) 17.29 -0.2% +24.2%
Water (PHO) 23.96 -0.8% +24.1%
Software (PSJ) 33.27 -0.2% +20.2%
Insurance (PIC) 19.01 +0.1% +18.3%
Big Tech (QQQQ) 79.09 -0.1% +16.0%
Basic Mat (IYM) 74.17 -1.2% +11.1%
Telecom (IYZ) 27.66 -0.7% +10.7%
Nanotech (PXN) 7.01 0.0% +10.2%
Utilities (XLU) 37.41 -0.6% +7.5%
Real Estate (IYR) 64.44 -0.4% +3.9%

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