Forget Herbalife: Profit With These ‘Boring’ Global Powerhouses

Summer TV is pretty boring, with the exception of the Discovery Channel’s (Nasdaq: DISCA) Shark Week. Choosing between stale reruns or weak summer pilots that didn’t make the cut, it’s no wonder everyone goes on vacation.

#-ad_banner-#Recently, hedge fund manager Bill Ackman ‘s seemingly quixotic charge on Herbalife (NYSE: HLF) and the noisy response from the likes of Carl Icahn  and other pundits sounds and feels like a rerun. 

So while the hedge fund guys make noise and the market stumbles around trying to digest the events in Israel and Ukraine, investors are probably wise to tune out the noise and focus on finding reasonably priced stocks with strong global franchises and growth strategies. 

I’ve found three well-known stocks that fit these criteria perfectly.

1. Vodafone Group (NYSE: VOD )

Flush with cash after selling its giant stake in Verizon (NYSE: VZ), Vodafone continues to be one of my favorite plays in both the telco and frontier market spaces. 

Its strongest franchises are in Germany, Italy, Spain, the U.K. and India, where it holds one of the top two positions in each market. The company’s strategy is focused on increasing its share in its primary markets while investing heavily in frontier markets, Africa in particular. 

Vodafone is also busy selling non-core assets, which, along with its Verizon war chest, will generate cash to finance its activities. Over the past five years, earnings per share (EPS) have grown at an average annual rate of 53%. Vodafone’s ratio of long-term debt to capital is also relatively low for a telecom at only 23%. 

VOD trades around $34 with a forward price-to-earnings (P/E) ratio of 16.9 and an attractive dividend yield of 5.5%. The stock also trades at just 0.7 times book value, a compelling discount to the tangible value of the company.


2. WPP (Nasdaq: WPPGY )

With over 2,500 offices in 108 countries, WPP is one of the world’s largest advertising agencies. Think “Mad Men” on steroids. Its portfolio contains some of the legendary names of the ad business: Ogilvy & Mather, JWT, Young & Rubicam, and Grey Advertising, to name a few. 

While 41% of its annual revenue does come from traditional sources of commissions from media placement and advertising services, 24% comes from specialized research, data and consulting services; 26% comes from the company’s branding and specialist communications arm, and its public relations arm rounds out the remaining 9%. WPP’s growth strategy is compelling in that the company has set a goal of deriving at least 30% of its revenue ($17.2 billion in 2013) from emerging markets. 

EPS have been growing at an average annual clip of 20% over the past five years, which is impressive in a global economy plagued by fits and starts. One main growth driver has been the explosion in digital and mobile media. Shares trade around $105 with a forward P/E of 15.5 and a dividend yield of 3.6%. I generally shy away from triple-digit-priced stocks, but WPP’s price is reasonable for a company with its massive footprint, EPS growth, and reasonable forward P/E of 14.


3. International Paper Co. (NYSE: IP )

Thanks to the emerging global middle class , the paper giant has become the world’s leading producer and distributor of packaging products. In recent years, the company has invested heavily in cheaper, higher-growth markets such as those in the BRICS (Brazil, Russia, India, China and South Africa) economies. 

Over the past five years, EPS has grown at an impressive annual average of 19%. The company has also realized $1.2 billion in cost savings through organizational streamlining and has generated over $11 billion in cash through assets sales and the spin-off of its distribution business, which now trades publicly as Veritiv Corp. (NYSE: VRTV). IP’s return on equity is 19%, respectable for a tight-margin business. 

Thanks to these efforts and a strong balance sheet, IP has done a great job on returning value to shareholders. The company has $970 million remaining on a $1.5 billion share repurchase plan, and analysts expect the dividend to grow by 10% over the next few years. Shares trade near $50 with a modest forward P/E of 13.9 and a dividend yield of 2.9%.

Risks to Consider: The global nature of all three of these companies is the biggest challenge they face. Although focusing on emerging markets with the growing global middle class is an attractive investment thesis, keep in mind that those markets represent just as much risk (political, economic, and so on) as reward. WPP and IP also have historically been very cyclical businesses.

Action to Take –> As a basket, these stocks have an average forward P/E of 15.4 and a dividend yield of 3.6%.With collective average five-year EPS growth of 30%, that blended P/E could grow to 19.7 in 12 to 18 months. With dividends, the result would be a potential total return of close to 30%.

Stocks like these make a great investment for yield-starved investors. But did you know that 79% of the world’s highest-yielding stocks are actually overseas? In fact, we’ve found 93 stocks that yield 12% or more, including some of the safest, highest-yielding stocks the world has to offer. To get more information on these stocks, follow this link.