It's time to go global in my periodic quest for stealth blue chips, an effort I launched in October 2003.

These stocks would have all the characteristics that investors want in a blue chip -- without the big price tags. So far, I'd call the portfolio of 11 stocks a success: Through Feb. 4, the worst performer since I picked these stocks is Kinder Morgan Energy Partners ( KMP), and it had gained 2.7%. The best gain was 107.9% from Penn National Gaming ( PENN). The average gain for the 11 picks was 30.9%.

All 11 are U.S. companies, and each will thrive or dive with the U.S. economy. Today I'll pick 12 stocks whose fortunes are pegged to the global economy. I'm calling this portfolio, which I plan to regularly revisit, my global stealth winners.

Where the Growth Is

Why go global now? Simple. It's where the growth is. Most economists think the sustainable rate of growth in the U.S. economy is somewhere around 3% a year. That's great -- for what's often called the developed world. Europe is growing at a roughly 2% clip at best, and some of its key economies are growing at rates near zero. Japan's growth situation is similar.

But U.S. economic growth is anemic by the standards of what's still called the developing world. India and China both topped 8% in 2004 and seem able to keep matching or beating that rate in 2005 and well beyond. Even countries we aren't accustomed to putting in the "growth" category are outgaining the U.S. The Philippines is looking at growth of 5% to 6% in 2005. Even Mexico, with all the structural problems its economy has, is likely to outgrow the U.S. over the next decade.

Those numbers aren't magic or some international conspiracy. They're the result of demographics. In the long run, the growth rate of an economy is simply the sum of the growth rate in population and the growth rate of productivity. Countries with younger, faster-growing populations have a leg up in the economic growth race.

Four Themes to Play

General investing themes for making a profit out of this higher level of growth in the developing world aren't hard to find. I think these four, for instance, will be immediately recognizable.

First there's the financial services play. As income rises in countries such as China and India, the population will consume more Western-style financial products such as credit cards and life insurance. Increased income also means increased consumption of consumer goods and services, such as travel and processed foods.

Growth will drive demand for technology products such as digital cameras and the flat screens that go into laptop computers. And all of this economic growth requires huge growth in infrastructure and leads to increased consumption of raw materials such as cement, iron ore and oil.

Because those four themes aren't especially arcane or complex, the obvious big-cap ways to profit from them have already been bid up -- not always to prices that make them ridiculously expensive, but to prices that are higher than those commanded by less-familiar stocks.

So, for example American International Group ( AIG), one of the great financial services plays on Asian growth, trades at 16 times trailing 12-month earnings. But Prudential Financial ( PRU), one of the most successful sellers of life insurance and annuities in Japan and Korea, is much less familiar to investors looking for global growth -- and it trades at a lower 13.8 times trailing 12-month earnings.

And if you're willing to take a little more risk -- and let's be honest, owning Prudential Financial is riskier than owning AIG -- and own the less well-known, "stealth" global-growth stocks, I think you can pull in higher gains that will more than compensate for the higher risk.

12 'Stealth' Global Winners

I've divided my 12 stealth global winners into four categories that correspond to the investing themes I outlined above.

1. Growth in consumption of Western-style financial services rises as incomes climb in the developing world.

Prudential Financial. After 15 years of operating in Japan, the company's Life Planner marketing program sells more life insurance/annuities per agent than any competitor's marketing platform. And Prudential is rolling it out to new cities in Japan and Korea.

Kookmin Bank ( KB). The largest lender in Korea holds a sizeable portfolio of loans to small- and medium-size business. As a major partner in China's economic expansion, Korea's Kookmin Bank is a safer way to play the growth in China's financial sector than China's own banks. The Wall Street consensus projection on Kookmin's long-term earnings is for 14% annual growth.

ICICI Bank ( IBN). ICICI Bank continues to make progress in its transition to an Indian retail consumer bank. In the December 2004 quarter, retail assets grew 63% year over year, fee income grew 83%, and after-tax profit climbed 18%.

2. Increased consumption of Western-style consumer goods and services as incomes rise.

Accor ( ACRFF). Europe's largest hotel group is driving into China, where the company is starting to open budget-priced Ibis hotels to go with its luxury Sofitels, its four-star Novotels and its three-star Mercure properties. In the fourth quarter of 2004, revenue rose (excluding currency effects) 5% as weak revenue in Europe (because of the decline in the U.S. dollar) was offset by revenue from new hotels (read Asia). Revenue in the company's travel-agency business climbed 14%.

San Miguel ( SMGBY). The Philippines' largest food and beverage company has its sights set on the rest of Asia. Currently the company is embroiled in a fight to buy National Foods, Australia's largest dairy company. Besides operating in Australia, San Miguel has announced intentions to expand in China, Thailand, Malaysia, Indonesia, Taiwan and Vietnam.

Corn Products International ( CPO). As incomes rise, so does the demand for processed sugars -- like it or not -- as sweeteners in soft drinks and processed food. About 18% of the company's sales are from Asia and Africa now, but Corn Products has targeted China, Pakistan and Thailand for expansion.

3. Global economic growth creates a new demand for technology products in both the developed and developing worlds as global manufacturing lowers technology prices.

Canon ( CAJ). The Japanese company is riding strong growth in unit demand for its laser printers and digital cameras. Unlike many technology companies, Canon looks like it will be able to keep its profit margins steady, thanks to recent moves to cut costs by moving manufacturing from its home base in Japan to low-cost countries such as China and Vietnam. Sluggish Japanese equity markets have made Canon relatively cheap with a 12-month-trailing price-to-earnings ratio of just 14. The consensus projection calls for long-term earnings growth of 17% annually.

AU Optronics ( AUO). Despite rising unit sales of LCD screens, this Taiwan-based company has been socked by falling prices. But supply and price seem likely to stabilize in 2005. On Jan. 31, its shares were upgraded to buy from hold by Deutsche Bank Asia.

Tata Consultancy Services. The oldest and largest software exporter in India, this company's revenue is about 50% greater than that of No. 2 Infosys Technologies ( INFY). General Electric ( GE), at 15% of overseas sales, is the company's biggest foreign customer. Shares listed on the Bombay stock exchange (ticker: 532540.BY) in August 2004.

4. High rates of economic growth create new demand for infrastructure and raw materials, while limits on supply, even if temporary, drive up prices for commodities.

Cleveland-Cliffs ( CLF). This North American producer of iron-ore pellets is going to Asia where the customers are. The company has made a friendly bid on Australian iron-ore miner Portman Ltd. The deal would add about 8 million tons of iron a year to Cleveland-Cliffs' output. The stock trades at a trailing 12-month P/E of 13.8.

Siam Cement. Thailand's dominant industrial conglomerate, which trades under the symbol SCC in Thailand, has plans to become the dominant industrial conglomerate in the Southeast Asian region by continuing its drive to expand from cement into chemicals and paper. There's plenty of cash, too: Net profit climbed by about 80% in 2004.

Talisman Energy ( TLM). It's where Talisman's oil and gas are that makes this an attractive global play. With major fields in Southeast Asia and new projects coming into production in Indonesia, Talisman is right next door to the fastest-growing energy markets. Both China and India are on the prowl for resources, and Talisman would make a tasty bite.

I obviously haven't been able to do justice to these 12 stocks in one column. (That's the polite way to say, "You need to have your head examined if you buy any of these without doing your own due diligence.") But I hope I've jump-started a little consideration of something besides the usual suspects when the discussion turns to global investing.

I'll be tracking this portfolio, reporting on its gains or losses, and adding to it in the coming months. If you have a suggestion for a stealth global winner, please don't be shy about emailing me with your suggestions.

Eleven Winners
Jim Jubak's stealth blue chips
Stock Recommended Price Feb. 4 Close Gain
Affiliated Computer Services (ACS:NYSE) 10/14/2003 $49.90 $53.42 7.10%
Applebee's International (APPB:Nasdaq) 10/14/2003 22.73 28.33 24.6
Brown & Brown (BRO:NYSE) 7/21/2004 42.35 43.98 3.8
Chico's FAS (CHS:NYSE) 10/14/2003 36.9 52.1 41.2
CUNO (CUNO:Nasdaq) 7/21/2004 51.53 57.85 12.3
Donaldson (DCI:NYSE) 10/14/2003 28.6 31.84 11.3
Expeditors International (EXPD:Nasdaq) 10/14/2003 37.18 56.31 51.5
Kinder Morgan Energy Partners (KMP:NYSE) 10/14/2003 44.17 45.37 2.7
Main Street Banks (MSBK:Nasdaq) 10/14/2003 25.98 32.23 24.1
Penn National Gaming (PENN:Nasdaq) 7/21/2004 33.14 68.89 107.9
SCP Pool (POOL:Nasdaq) 10/14/2003 20.4 31.28 53.3
Portfolio average gain 30.90%
S&P 500 gain, 10/14/03-2/4/05 15
S&P 500 gain, 7/21/04-2/4/05 10
Nasdaq Composite gain, 10/14/03-2/4/05 7
Nasdaq Composite gain, 7/21/04-2/4/05 11
Source: MSN Money

Changes to Jubak's Picks

Buy Talisman Energy. The company has grown oil and gas production about 15% annually since 1993. I think there's a good chance that the company will manage to grow production by 10% or slightly better annually through 2008. At a time when it's very hard to grow production at all in the oil and gas industry, that's a good enough story to make this a buy in Jubak's Picks. I'm adding Talisman Energy to Jubak's Picks with a January 2006 target price of $39. (Full disclosure: I own shares of Talisman Energy.)

At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: ICICI Bank and Talisman Energy. He does not own short positions in any stock mentioned in this column. Email Jubak at jjmail@microsoft.com.

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