Editor's Note: In each monthly issue of her High-Yield Investing newsletter, experienced analyst Carla Pasternak introduces her readers to several new high-quality income-producing investment ideas. In her November 2004 Mid-Month Update she placed the spotlight on two undervalued income stocks that are now trading at bargain-basement prices. Below you'll find a few short excerpts from that issue...

Anglo American (AAUK) -- AAUK spells VALUE. While other metals and mining firms are rallying strongly in the face of a falling U.S. dollar, Anglo American remains below analysts' radar screens. Despite a $34 billion market capitalization, the firm is under-followed. Only a handful of analysts track the stock, and institutions own only 1% of the firm's outstanding shares. The result is the stock hasn't advanced with others in the metals and mining industry and is enormously undervalued. With a P/E of less than 10 times 2005 earnings, the stock is trading at a steep discount to its peer group average of about 35. It's also trading at a discount to the firm's own projected growth rate of +15%. Add in the stock's generous 2.5% dividend yield, and AAUK's valuation looks compelling.

Anglo American is not a pure gold play. As a large, diversified mining company, AAUK is less volatile than stocks such as Placer Dome (PDG) or Barrick (ABX). The UK-based conglomerate controls mining interests all over the world. It has a 55% stake in gold and silver producer AngloGold Ashanti (AU), holds 74% of platinum producer Anglo American Platinum, owns 45% of diamond producer De Beers Consolidated, and is one of the world's largest independent coal miners. It also has interests in base metals and industrial minerals, as well as paper and packaging products. Since placing this gem on our Watch List last month, we have become increasingly convinced that, over time, AAUK will deliver market-beating returns.

MCG Capital (MCGC) -- MCG Capital lends money to and invests in about 80 mid-sized companies across the U.S. As a business development company (BDC), MCG works with these firms to develop and implement effective business strategies. In addition, it receives business advisory fees and interest income from the debt and equity securities it holds in its portfolio. The company's portfolio is heavily weighted in high-growth media and telecom firms. The stock pays a $1.68 dividend per share, which equates to a 9.6% yield based on recent share prices. MCG is also significantly undervalued, with a forward P/E of 10 -- below its one-year earnings growth rate of +11%. The firm also boasts a healthy balance sheet, with a low D/E (debt-to-equity) ratio of just 0.6. With all of these factors in mind, this closed-end investment company looks like an excellent choice for value-minded income investors.

Important Note: To view the remainder of this article, which includes an in-depth analysis of several additional high-yield income stocks, you'll need to read the most recent issue of our premium High-Yield Investing newsletter. In each issue editor Carla Pasternak presents her readers with three model income stock portfolios, several in-depth articles and a host of other investing ideas and tips designed to help you earn above-average income from your portfolio. To receive your copy of our most recent High-Yield Investing newsletter, as well as other guidance similar to this every month, you'll need to sign up for this publication. To learn more, please visit the following link:
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