Addressing the European Parliament, President Sarkozy implored his European contemporaries to embrace the current period of economic upheaval as an opportunity to restructure the global financial system. According to the Daily Telegraph, he also articulated the concern of many Western authorities that sovereign wealth funds, located primarily in Asia and the Middle East, could use their massive cash reserves to scoop up key foreign assets at extraordinarily low valuations.

“Stock markets are at historic lows. I do not want European citizens to wake up a few months from now and discover that European companies belong to non-European capital which has bought at the lowest point of the stock exchange,” Sarkozy said. “I would ask that all of us consider how interesting it would be to set up sovereign funds in each of our countries – and maybe these national sovereign funds could now and again coordinate to give an industrial response to the crisis.”

Sovereign wealth funds, or SWFs, currently control an estimated $3 trillion. That’s already believed to be more than the $1.5 trillion to $2 trillion held by worldwide hedge funds (though some sources put the hedge-fund estimate as high as $5 trillion).

The International Monetary Fund (IMF) and other experts predict the state-run venture funds could control $12 trillion by 2015. But Money Morning Investment Director Keith Fitz-Gerald thinks the ultimate total will actually be much higher: Even now, he estimates that the total capital under the control of the “Global Cash Barons” is more likely to reach $20 trillion by the middle of the next decade. [To fully understand the growing power and influence of sovereign wealth funds worldwide, check out this Money Morning report: “Three Ways to Profit From Sovereign Wealth Funds: The Next Wall Street.”]

Some of the most prominent funds include China Investment Corp., which holds an estimated $200 billion, and the Abu Dhabi Investment Authority, which controls as much as $875 billion.

Conflicts of interests have already cropped up with respect to international takeovers, most notably in the form of Bain Capital Partners LLC and Huawei Technologies Co.’s failed takeover of Marlborough, Mass.-based 3Com Corp. (COMS).

In September 2007, China’s No. 1 network-equipment maker and Bain Capital launched a $2.2 billion takeover bid for 3Com. The deal stipulated that Huawei would receive a 16% stake in 3Com, leaving the rest to Bain. However, complications arose when the U.S. government expressed reservation about the deal and the possible breach of national security.

The fact that Shenzhen-based Huawei was founded by Ren Zhengfei, a former officer in the Chinese army, raised suspicion about the company’s intentions for 3Com, which has its own ties to the Pentagon.

3Com’s Tipping Point unit makes security software for the U.S. government, and policymakers worry that 3Com’s networking technology would allow China to eavesdrop on U.S. domestic conversations. Another concern was that the company’s encryption technology would make Chinese networks harder to tap.

Similarly, the year prior, Dubai Ports World – a United Arab Emirates-based maritime company – bowed to pressure from U.S. Congress and sold off its U.S. port operations to an American owner.

“There are a number of big French or European groups whose market value today is a third of what it was six months ago,” Sarkozy said, expressing his reservations about the growing role of SWFs. “Yet, there exists in the world sovereign funds with considerable means,” he said.

Europe’s Dow Jones Stoxx 600 Index has lost nearly half of its value since peaking in June 2007.

Sarkozy deflected criticism from former European Trade Commissioner Peter Mandelson, who described attempts to exclude foreign competitors from European markets as a modern day, economic “Maginot Line,” the highly touted, very expensive, and supremely ineffective defensive barrier erected in France prior to World War II as a deterrent to German intrusion.

“It is not a question of building a Maginot Line,” said Sarkozy, “What you have to do is take into account the pragmatic situation, the markets are depressed.”

Critics of Sarkozy’s request point out that Europe lacks adequate funding to create its own SWFs. The funds that sprang from Asia and the Middle East in recent years have huge pools of foreign exchange reserves and petrodollars to draw from. European nations don’t have these stockpiles of cash.

“We simply don’t have the money,” Joerg Kraemer, chief economist at Frankfurt-based Commerzbank AG (OTC ADR: CRZBY) told Bloomberg.

Sarkozy’s proposal also “suggests that all foreign sovereign wealth funds are negative,” Kramer went on. “That’s an assumption I don’t share.”

Source: French President Sarkozy Calls for European Sovereign Wealth Funds to Protect Assets

Coca-Cola’s offer of $1.56 per share (HK$12.20) is more than triple China Huiyuan’s recent closing price of HK$4.14 a share. It is the company’s largest overseas acquisition to date, and the biggest foreign takeover of a Chinese company ever. The deal values Huiyuan at 46.6 times this year’s estimated earnings, according to Bloomberg data.

“It’s a sizeable offer, but certainly a very smart one,” said Lou Basenese, editor of the Oxford Club’s Takeover Trader. “It’s better than building everything from ground zero. It’s a shortcut into a promising market.”

By 2025, China’s middle-class is projected to exceed 600 million. That’s twice the size of the entire population of the United States. And a great many of those people will be drinking Huiyuan products.

Sales of fruit and vegetable juices in China will grow 16% to $12.3 billion this year alone, according to Euromonitor International, whereas carbonated beverage sales are only forecast to rise 7% to $7.94 billion.

That gives Huiyuan a decided advantage. And not just because it’s a hometown player. With 220 beverage products and a 10.3% market share, Huiyuan is actually China’s biggest producer of fruit and vegetable juices. And when it comes 100% pure juice products, the Beijing-based beverage giant accounted for 43% of all sales last year.

“There’s no question Huiyuan is the market leader in China. It just isn’t a huge market right now,” said Basenese. “But that’s true of all emerging markets. It’s the massive growth potential that makes this deal, and emerging markets in general, attractive.”

Coca-Cola says that it expects more than 80% of its future growth to come from markets outside of the United States. The company’s sales in China jumped 18% last year.

There is also growing speculation that Coca-Cola will take Huiyuan’s products abroad.

“It’s very possible Coca-Cola will leverage the Huiyuan brand, acquire other Chinese juice makers, then boost their output for export,” Lawrence Chor, analyst at Tai Fook Securities, told Reuters.

However, the acquisition is still up for regulatory approval and there’s no guarantee the deal will pass.

Takeover Opportunities Abound in Emerging Markets

Inbound mergers and acquisitions are notoriously difficult in China, where state interference and red tape ensnare corporations and nationalistic pride triggers protests against foreign companies seeking influence over popular domestic brands.

“There are two main difficulties,” Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, told Xinhua. “One is the large size of the two companies, which will raise concerns about monopolies. The second is that the brand of Huiyuan is considered to be protected as a famous domestic brand.”

In July, U.S. private-equity firm The Carlyle Group ended its Herculean effort to buy a stake in Xugong Group, one of China’s biggest manufacturers of construction machinery, after three years of attempting to plow through regulatory resistance.

There’s also the matter of the U.S. government preventing Chinese companies from acquiring U.S. assets.

In September 2007, Huawei Technologies Co. and Bain Capital Partners LLC launched a $2.2 billion takeover bid for Internet-equipment-maker 3Com Corp. (COMS). That deal was blocked when it was revealed that exposure to 3Com’s technology might allow China to eavesdrop on U.S. domestic conversations, or make Chinese networks harder to tap. Three years ago, CNOOC Ltd. (ADR: CEO), a unit of China’s top offshore oil and gas producer, was forced to abandon its $18.5 billion bid for Unocal, after a political uproar in the United States.

“If you think back to Unocal or 3Com, there is already [a] precedent for the Chinese government to return the favor and block any U.S. company from making too big a splash in its domestic market,” said the Oxford Club’s Basenese.

Whether Coke’s deal for Huiyuan goes through or not, another potential takeover target is Wimm-Bill-Dann Foods OJSC (ADR: WBD), says Basenese. WBD is Russia’s largest dairy company and a global manufacturer of dairy and juice products.

The company fell short of analysts’ expectations in the second quarter, as high raw milk costs and slowing demand pinched margins and led to just an 8.8% rise in net profit. However, sales jumped 26% to $760.1 million, and earnings before interest, taxes, depreciation and amortization (EBITDA) were up 21% from a year ago, reaching $93.1 million.

WBD could easily find itself in the crosshairs of Coca-Cola, Groupe Danone SA (OTC: GDNNY), or Coke rival PepsiCo, Inc. (PEP).

In March, PepsiCo spent $1.4 billion to acquire Lebedyansky JSC, a Russian producer of juice, juice drinks, nectars, ice tea, mineral water, baby juices and baby food. And it won’t stand pat if Coke succeeds in its bid for Huiyuan. And Danone, which owns one-fifth of Huiyuan, is a minority shareholder in WBD, as well.

Danone has already agreed to sell its stake in Huiyuan to Coca-Cola, and with such a generous offer on the table, is in the perfect position to reap a war-chest-filling windfall for its Huiyuan shares. With that cash on hand, many analysts believe that Danone may seek a larger stake in WBD, if not an outright takeover.

Danone appointed its senior executive to WBD’s board in 2007.

Source: China Huiyuan Quenches Coca-Cola’s Thirst for Foreign Exposure, but Still Faces Regulatory Scrutiny

Floyd says any investor can use a simple stock screener to help identify potential bargains. Reviewing cheap stocks for companies with profits, cash flow, and the ability to make debt payments is an excellent way to find the next portfolio superstar.

Using this strategy, Floyd says Qwest Communications (NYSE: Q), American Shared Hospital Services (AMEX: AMS), 3COM Corp (Nasdaq: COMS) are good contrarian profit plays…

Protecting investment principal and your profits should be a concern in any market, much less a bear market. Contrarian investors looking for deep discounted value can find themselves walking a tightrope between “buying on the cheap,” and “buying garbage.” And in the down markets like we’ve been in, it can be hard to distinguish between the two.

Nevertheless, keeping a portion of your portfolio in deep value and contrarian plays can be hugely profitable. The possible rewards of double-digit plus returns from these “portfolio superstars” are the stuff cocktail-party stories are made of.

The last year has been painful for the market. Record numbers of stocks are in the gutter, and cheap stocks seem to be everywhere. Many of these shares are selling at a discount not because of poor performance, but simply because of negative investor psychology. Here’s a strategy for finding these bargains, and separating them from the companies on their deathbed.

Screen for Stocks… Like a Professional

I like to use an ordinary stock screener, but if you have one you like, use whatever you’re comfortable with. If you don’t use one on a regular basis, try Yahoo’s stock screener. These are great tools to start off a potential investment search that many professionals wouldn’t be caught without.

Open up your screener, and let’s find some deep value stocks…

We want stocks on the major indexes that are trading like penny stocks (stocks trading below $5 a share). At Investment U we generally don’t advise investors to purchase penny stocks, because there are a lot of good reasons these companies are priced so low. However, the market is not a rational system. It behaves irrationally and over-reacts. This has created some exceptions for the contrarian investor…

Set your first criteria on the screener under “Share Performance” for “Current Price” with a condition of “<=” and a value of “$5.” (Companies trading less than or equal to $5.00 a share.)

Next, we will look at valuation. There are a number of metrics we could use like price-to-earnings (PE), price-to-cash flow or price-to-book value. However, today I want to look at price to sales (P/S) ratio. By screening for these super cheap firms trading at less than one times sales you are paying less than $1.00 for a $1.00 in sales.

Set your second Criteria under “Valuation” to “P/S” with a condition of “<=” and a value of “1.” (Companies with a P/S ratio of less than 1.)

Hmm, what do we find?

We find a mix of beaten-down companies including financials, media firms, tech firms, auto related firms, a couple of airlines and even some consumer names. The screener returned over 200 stocks from this simple two-factor screening. I find that by looking at the largest companies you can find the ones best suited to weather economic downturns.

In reviewing the list, I am looking to identify companies with profits, cash flow and the ability to continue to make debt payments.

Here are three of the firms that caught my attention.

Qwest Communications (NYSE: Q) is trading at $3.85. This telecom firm gets no respect. It is the product of the ill-fated merger of long distance provider Qwest and the old regional Bell firm US West. As the firm loaded up on debt for the merger, the business swiftly changed. It has been plagued by the cancellation of landlines. In addition, its core business is shrinking. If its customer base stabilizes, and if it’s able to leverage its network, its debt will go down. Without a mountain of debt to dig out from, shareholders should see profits hitting the bottom line, and their wallets.

3COM Corp (Nasdaq: COMS) is trading at $2.20. Last year, the Chinese and Bain Capital tried to take this computer-networking firm private. The Pentagon blocked the sale because of national security concerns. Why? The technology this firm controls is vital to national security in everything from handheld devices to networking applications. Security personnel are currently watching over the Olympic Games via IP-based surveillance cameras, thanks to networking provided by 3Com. Quarterly earnings at 3Com are improving, and the share price action is more the result of the broken leveraged buyout than the state of the company.

American Shared Hospital Services (AMEX: AMS) is trading at $2.17. This firm helps hospitals acquire the Gamma Knife equipment used in advanced radio surgical and radiation therapy services. This company was known for paying a healthy dividend. But late last year management decided to cut the dividend to reinvest the cash in growing the company. Shares were punished as income investors fled. The AMS Chairman, Ernest Bates MD, is bullish on the future saying in the last company conference call that earnings results “show how our strategy to use AMS’ creative financing solutions to make proton beam radiation therapy (PBRT) systems, Leksell Gamma Knife PerfexionTM systems, IGRT systems and other next-generation devices for radiation oncology delivery available and affordable to our clinical partners and their patients has put us on the path for long-term growth.”

With a little research you can find that this current market correction is just the opportunity that deep value and contrarian investors like myself love to see. So fire up the stock screener and find your portfolio’s next “superstar.”

Source: Finding Deep Value Plays… and Your Portfolio’s Next Superstar

In September 2007, China’s No. 1 network-equipment maker and Bain Capital launched a $2.2 billion takeover bid for 3Com. The deal stipulated that Huawei would receive a 16% stake in 3Com, leaving the rest to Bain. However, complications arose when the U.S. government expressed reservation about the deal and the possible breach of national security.

The fact that Shenzhen-based Huawei was founded by Ren Zhengfei, a former officer in the Chinese army, raised suspicion about the company’s intentions for 3Com, which has its own ties to the Pentagon.

3Com’s Tipping Point unit makes security software for the U.S. government, and policymakers worry that 3Com’s networking technology would allow China to eavesdrop on U.S. domestic conversations. Another concern was that the company’s encryption technology would make Chinese networks harder to tap.

Bain broke off a deal with China’s Huawei Technologies in March when it became apparent that their application to the Committee on Foreign Investment would not be approved. Now, 3Com is suing for a $66 million breakup fee.

“3Com now seeks the benefit of the bargain that was struck, and to require Bain Capital’s Newco to live up to its commitments in the merger agreement by paying the termination fee,” lawyers for Marlborough-based 3Com said in a statement.

Source: 3Com Sues Bain Capital for $66 Million Failed Takeover