With patriotic feelings running high this November, now is the time to "buy American" -- American stocks.Even though the greenback may be getting more buying power overseas, one area where you shouldn't be traveling is in your portfolio.
The most well known example of this has been the Oracle of Omaha's op-ed in the New York Times. In it, Warren Buffett explained, "The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher... So ... I've been buying American stocks." Buffett believes that most major companies will be setting new record profits in the next couple decades, so the tumbling share prices simply don't make sense. Economist Jeremy Siegel agrees: "I believe that stock prices are now so extraordinarily cheap that I would be very surprised that if an investor who bought a diversified portfolio today did not make at least 20% or more on his investment in the next twelve months." That's no small claim for an economy in trouble and a stock market that's down substantially in 2008. And now, with President-elect Barack Obama set to take office in January, does it still make sense to buy American stocks? Siegel thinks so. In a 2006 article on the economics of politics, Siegel wrote, "Since 1948, Republican Administrations have controlled the White House 57.2 percent of the time. But during the period that the GOP was in office, stock returns have averaged only 9.53 percent per year, while under Democratic administrations, stocks returned 15.25 percent per year, more than five percentage points higher."
Besides that, here are a few key elements to look for when you screen for undervalued stocks: decent free cash flows, a strong balance sheet, and income statement growth. In today's market, there are plenty of investment plays that meet that description. At a glance, a few of my favorite long-term stock investments right now include International Paper ( IP), Molson Coors Brewing ( TAP), and SUPERVALU ( SVU). Here's why. International Paper looks attractive for a few reasons: The paper and packaging company reported impressive revenue growth in the last quarter, they're trading at price-to-book ratio of 0.7 (well under the industry average of 1.1), and they have a history of delivering a nice dividend to investors. Molson Coors Brewing is equally attractive (and not just because of a witty ticker symbol). This colossal beer brewer has been aggressively expanding its brand reach, most recently acquiring stakes in brands like Fosters and starting a joint venture with SABMiller. Besides the fact that beer is a great "recession-play," the stock is priced at only 90% of book, and, like International Paper, is a good dividend stock.
SUPERVALU is a grocery chain that also has a thriving supply chain business. One of the most attractive things about SUPERVALU is the financial responsibility undertaken by management. Since 2001, the company's leaders have been diminishing debt and growing sales on a consistent basis. With better-than-industry margins, dividends, and valuation ratios, SVU is one retail grocer that has staying power through a tough economy.