• Microsoft Corp.’s (MSFT) quarterly profit rose 2% from a year ago, the company said yesterday (Thursday) in a statement. The world’s largest software maker earned $4.37 billion, or 48 cents per share, in the quarter ended Sept. 30. Sales rose 9% to $15.1 billion.

• Goldman Sachs Group Inc. (GS) is cutting 3,200 jobs, or 10% of its work force, as the firm struggles with the credit crisis and transitions into a holding company. The cuts add to more than 130,000 jobs eliminated in the financial industry since mid-2007, topping the 83,000 lost after the Internet bubble burst in 2001, Bloomberg reported.

• The Dow Chemical Co. (DOW) yesterday (Thursday) reported a 6% rise in third-quarter profit. The company reported earnings of $428 million, or 46 cents per share, up from $403 million, or 42 cents per share, a year ago. Sales rose 13% to $15.4 billion.

• Sony Corp. (ADR: SNE), the Japanese consumer electronics giant, announced (Thursday) that profits would be markedly weaker for fiscal year 2008. Sony predicted earnings of $1.5 billion (150 billion yen), down from an earlier July forecast of $2.4 billion (240 billion yen), The Washington Post reported.

• An auction to set the value of Washington Mutual Inc. (OTC: WAMUQ) debt was held yesterday (Thursday). Markit and Creditex, auction administrators, set the debt cost of failed bank Washington Mutual at 57 cents on the dollar. Sellers of credit default swap protection must pay 43 cents to counterparties, MarketWatch reported.

• Crude oil gained $1.09, or 1.6%, to settle at $67.84 yesterday (Thursday) in anticipation of the Organization of Petroleum Exporting Countries (OPEC) meeting today (Friday). “If OPEC makes a cut of 1 to 2 million barrels tomorrow, prices should firm up and move higher in the short term,” Gene McGillian, an analyst at Tradition Energy in Stamford, Conn., told Bloomberg News. “Unless there is something huge announced, the market will eventually start moving lower again because of the weak economy.”

Source: Global Investing Roundups Friday, October 24th, 2008

What’s tipping us off? The so-called Price/Earnings-to- Growth ratio, better known to investors as the “PEG” ratio.

Let me explain …

One of the most popular stock valuations is the Price/Earnings (P/E) ratio. If you take that calculation one step further and include a stock’s expected growth rate you hit on the P/E-to-growth ratio, or PEG ratio.

Analysts have been using PEG ratios for years, now, to pick undervalued stocks, but now you also can use that same ratio to determine which countries are trading at good value.

A recent Bespoke Investment Group report used the popular PEG ratio to identify which country’s stocks are currently undervalued.

“Late last year, we began performing this analysis on countries to get a better comparison of the valuations of both developed and emerging markets,” the B.I.G. Tips report read. “To do this, we divide the country’s [gross domestic product] growth estimate into the estimated P/E ratio of its major stock market index.”

Like an individual security’s PEG ratio, the lower the ratio, the more undervalued the stock.

The top-three spots on that list go to Russia (1.37), China (1.91) and India (2.06). Brazil clocks in at sixth with 2.80. Money Morning readers may recognize them as member of the “BRIC” nations – a term coined by Goldman Sachs Group Inc. (GS) in 2003 identifying rapidly growing emerging economies (Brazil, Russia, India, China). [For a complete listing of the PEG ratios of the respective countries, please see the chart below.]

Rounding out the top six are Malaysia (2.37) and South Korea (2.66), the latter of which is another investing favorite of both Money Morning and Warren Buffett, chairman of Berkshire Hathaway Inc. (BRK.A, BRK.B).

The United States, on the other hand, comes in near the bottom with an estimated PEG ratio for 2008 of 11.39.

When using the calculations to make investment picks, it’s important to remember that both the P/E ratio and the 2008 GDP growth are only estimates. Still, it’s easy to see how fast-growing economies have the leg up on more mature markets such as Japan and the United States.

How to Play the PEG for Profits

One of the easiest ways for U.S. investors to cash in on a foreign country’s expected stock market growth is with an American-listed exchange-traded fund (ETF) or exchange-traded note (ETN) that mirrors a foreign stock market index.

For the BRICs, you could try the iShares MSCI Brazil Index (EWZ), the Market Vector Russia ETF Trust (RSX), the Barclays IPath India Index ETN (INP), or the iShares FTSE/Xinhua China 25 Index (FXI).

If you prefer to stick to individual securities:

Russia: OAO Gazprom (OTC: OGZPY), the state-owned natural gas monopoly with ambitions to control Western Europe’s gas supplies.

Lukoil (OTC: LUKOY), the other obvious Russian heavyweight, is the largest state-controlled oil company.

China: A terrific way to play China is with the Region Opportunity Fund (USCOX), a mutual fund run by San Antonio-based U.S. Global Investors Inc. (GROW). Indeed, U.S. Global, itself, is a pretty good play on international growth. It manages some of the best emerging-market funds, and natural-resources funds, in the business. As global growth fuels global investments – and it will – U.S. global will see more money pour into its funds, boosting the management fees it collects, as well as its profits and stock price.

India: One of India’s titans is Tata Motors Ltd. (TTM), which recently sealed both ends of the consumer automotive spectrum with its forthcoming $2,500 Nano and its recent $2.3 billion acquisition of the Jaguar and Land Rover brands.

Another is option could be the pharmaceutical company Dr. Reddy’s Laboratories Ltd. (RDY). As many U.S. pharmaceutical patents expire in the next five years, this major generic-drugs manufacturer can expect to benefit.

South Korea: Back in October 2007, Buffett took a 4% stake in this country’s Number One steelmaker, POSCO Ltd. (PKX). Studies have shown that following Buffett’s investment moves, even months after the fact can be the pathway to profits.

Brazil: Companhia Vale do Rio Doce, now referred to only as Vale (RIO), is an iron-ore company with ancillary operations in gold, nickel, copper and other metals. It’s one of the true global blue chips, with a market capitalization of almost $200 billion.

Another Brazilian firm worth a look is Petrobras (PBR). It’s one of the few emerging market oil companies with access to modern technology – and the willingness to work with the oil majors.

Source: Popular Stock Indicator Tells Investors to Hit the BRICs

Goldman Sachs Group Inc. (GS) already is on record for $200-a-barrel oil. As you all know, our own Keith Fitz-Gerald – Money Morning’s investment director – has projected a crude-oil price of $225 a barrel. Do I hear $250? What about $5 a gallon gasoline by July 4th?

Sometimes, these daily price gyrations take on lives of their own, but at the end of the day, the basic laws of supply and demand always work themselves out.

The upcoming week’s hectic economic calendar could go a long way to clarifying the “Are we in a recession, yet?” discussion. Crucial news from manufacturing and labor highlight the week and any renewed strength in these sectors could put an end to the “R” talk for the time being (or until next week). In fact, the National Association of Business Economic forecast 0.4% economic growth for the 2nd quarter and a much stronger 2.2% gross domestic product (GDP) pickup in the 3rd quarter as the U.S. Federal Reserve and those tax rebates begin to work their ways through the system. Suddenly, economists are projecting a rebound and cries of recession have become somewhat muted (and replaced by cries of inflation).

Market Matters

Now that Memorial day has come and gone, investors seem to be monitoring the daily energy trades even more closely than usual (if that is possible) for signs that prices have peaked and Americans will be able to afford summer travel again. Well, in the aftermath of the holiday, gas prices actually continued their trek toward that dreaded $4/gallon level and hit a new national average of $3.96 late in the week. In fact, 11 states and the District of Columbia already are reporting average prices at the pump in excess of that psychological barrier.

While crude prices fell from last week’s record highs of $135/barrel, the ongoing “supply/demand vs. speculation” debate rages on. In one corner…The Department of Energy said that exports from the top oil producers dropped by 2.5% in 2007 and are on pace for a similar showing this year. While much of the increased demand focus has been on China, oil consumption throughout the Middle East (and Saudi Arabia, in particular) has skyrocketed in recent years, thus, leaving less to export and meet the growing demand abroad.

On the flipside, conspiracy theorists cry wolf that prices have been running without any regard to true supply/demand issues. They point to escalating trades in commodity (petro) futures indexes and make Internet bubble comparisons (remember those fun days?) as explanations for the wild price swings. This week, the regulators got involved (typically a day late and a dollar short) as the Commodity Futures Trading Commission initiated a probe into potential market manipulations by energy insiders.

And suddenly those increased water cooler discussions about the dreaded “I” word are starting to move from speculation to reality. Dow Chemical announced a 20% across the board price increase to “mitigate the effects of raw material costs.” German-based DHL soon will be “outsourcing” its North American delivery biz to competitor UPS as its seeks to reduce costs. Discounter airline JetBlue will not be adding to its fleet as expected because it too suffered the ill-effects of rising fuel prices that have prompted major changes throughout its industry (can you say consolidation?). Likewise, automakers continued to struggle from consumer activity (rather inactivity) as both Ford Motor Co. (F) and General Motors announced major reductions to their respective workforces. Apparently, the “rich and famous” have been impacted far less than others as Polo Ralph Lauren and Tiffany both reported better than expected quarterly earnings. Even Dell Inc. (DELL) surprised many analysts with a solid quarter on strong sales in Asia. Turning to financials, shareholders finally approved the JP Morgan Chase & Co. (JPM) acquisition of The Bear Stearns Cos. (BSC) (like they had much of a choice), though $10 a share is a far cry from the $170 the stock traded at in early 2007.

Investors took their clues from declining crude prices this week and again looked for value in the equity markets. The major indexes traded higher (often at the expense of fixed income). In fact, the yield of the benchmark 10-year drifted back above 4.0% for the first time in about five months as talks of inflation seemed to overshadow prior recessionary fears (see below). Still investor sentiment can change on a dime these days and next week brings significant economic releases that are sure to be over-analyzed. Until then, happy motoring (at $4/gallon).