JULY 31, 2006



Stock Screens

By Michael Kaye, CFA


Stocks: Big, Cheap, and European

The latest S&P screen turns up five attractively valued large-cap names—all from the same continent


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From Standard & Poor's Equity Research
This week, we decided to bait our hook for some really big fish—very large-cap stocks. And we wanted them at attractive valuations. We got what we were looking for, but with a bit of a surprise (more about that later).


Here's how we constructed our screen:

• First, because we wanted to make sure these were indeed "mega-cap" names, we limited our pool of candidates to those companies in our database with a market cap of $20 billion or more;
• Second, each stock had to trade at a forward price-to-earnings-growth (PEG) multiple below 1 times;
• Finally, we wanted to enhance the attractiveness of the names on our list, so we looked for those issues with a dividend yield of 2.2% or above.

When our screen was finished, five names emerged—and all were European.

We asked Alec Young, S&P equity strategist, about the preponderance of European names. He notes that "European stocks overall are pretty cheap historically." Indeed, he points out that the S&P Euro 350 index (including British issues) trades at a 2006 estimated PEG of only 1.2 (based on consensus estimates).

He adds, "Investors are worrying about a cyclical EPS peak globally," due to coordinated monetary policy tightening by central banks, high oil prices, and increasing geopolitical instability. "Risk aversion is therefore rising, and PEGs are contracting," Young says.

FIVE WINNERS? Those shrinking valuations might just add to the appeal of these stocks:

CompanyTicker
Barclays PLC ADRBCS

Deutsche Telekom ADRDT

France Telecom ADRFTE

Norsk Hydro ADRNHY

UBS AG ADRUBS



Kaye, an analyst for Standard & Poor's Portfolio Services, is the author of The Standard & Poor's Guide to Selecting Stocks


All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report.
Standard & Poor's Regulatory Disclosure

Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
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