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Grab This Misguided Discount in Oil and Gas

This article originally appeared Sept. 3, 2013, on Real Money. To read more content like this, + see inside Jim Cramer's multi-million dollar portfolio for FREE Click Here NOW.

We've seen some signs lately that the global economy is struggling its way to a recovery. In recent weeks we've witnessed better, if not fantastic, news out of Europe that seems to indicate things have at least stopped getting worse in the Old World. Manufacturing is growing, albeit at a snail's pace; unemployment has improved slightly; and purchasing managers have expressed more confidence in the future. Over the weekend, Central European factories reported that both output and demand were up in August. The European Commission expects the region to exit the recession in the fourth quarter of this year, and to actually grow a little in 2014.

Meanwhile, I am uber-skeptical of everything that comes from China, but the nation appears to be back on a growth path after a slowdown for a couple of quarters. China's version of the purchasing managers index improved in August, as did the PMI kept by HSBC. J.P. Morgan and Deutsche Bank both raised their growth-rate estimates for the world's largest emerging market. Even Japan is getting in on the recovery scenario, having put in improving economic numbers over the past few weeks.

Last week, I wrote about using the large international banks as a way to play a nascent global recovery. Over the weekend I spent some time thinking about other ways to get in on a long, slow recovery in Europe and Asia. I looked around for some companies that had been able to grow the value of their enterprise over the very difficult past decade, and which might be positioned for further and even accelerated growth as conditions improve around the world.

I specifically looked for companies that had shown strong book-value growth over the past 10 years, and which operate in industries that should grow at a faster pace than that of the global economy. I then filtered these stocks using Benjamin Graham's growth stock formula by multiplying the price-to-book-value ratio by the price-to-earnings ratio. Only stocks with a resulting sum of 22.5 or less were considered cheap enough to purchase.

The first thing that's very apparent is that the global markets are ignoring carbon fuels much in the manner that the U.S. market has done over the past few years. While I realize the alternative-energy story is a lot sexier, the truth is that it's also quite false at this moment. It is also false that long-term demand for fossil fuels will be declining any time soon. Oil and gas will continue to be the fuels that meet most global energy needs, and the companies that find and produce the stuff are going to grow more quickly than will the global economy.

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