Viva Italia! The World's Biggest Bargain

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Sterman

NEW YORK ( StreetAuthority) -- I was talking with a colleague a few weeks ago and she wondered aloud whether the economic and political chaos in Italy -- mainly the result of Europe's ongoing sovereign debt crisis -- was creating an opening for bargain-hunting investors. After all, we're talking about the fourth-largest economy in Europe (after Germany, France and the U.K.), an economy that has a fairly impressive industrial base. My initial thought was to steer clear. The open-ended economic crisis in the region could really hurt Italy in 2012, as the county enacts a set of belt-tightening moves. But if you are a regular reader of my articles, then you know I'm an assiduous bargain hunter.

So I decided to dig deeper.

Indeed, Italy's economic woes merit investors' attention. At least the iShares MSCI Italy Index Fund ( EWI) does. The fund holds a basket of Italy's top companies, many of which can be trusted to deliver steady results in any economic climate.

But because this fund is down from $20 to $12 this year, and down from $35 at the end of 2007, many may think its holdings are in deep trouble. This is not the case. For example, 22% of the fund is invested in Eni ( E), sort of the "ExxonMobil of Italy." Eni's performance is a lot more beholden to oil prices, which are quite firm, than any Italian economic trends. The oil giant generates about $145 billion in annual sales and typically earns about $5 per American depositary receipt (ADR).

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In fact, Eni has little to do with Italy in terms of either revenue or expenses. This is a company with a strong presence in Europe, Asia, Oceania, Africa and the Americas, a true multinational. As Morningstar recently noted, "Eni stands out from many much-larger global integrated oil peers . . . because of strong diplomatic ties forged by management. This allows the company to operate more effectively in difficult markets such as North Africa, the Middle East and Russia, and is well illustrated by the fact that Eni is the largest international oil and gas producer in Africa." Morningstar's analysts say that shares, trading at a recent $41, are worth $65.

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