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Message: GREECE at the bottom. TIME to BUY?

Wealth Wire

A cursory look at the headlines coming out of Greece will scare away investors. Constant emergency funding, unemployment over 25%, riots, bank runs and draconian wage cuts.

However, the constantly dire economic news is masking a positive story: Greece beat the relatively strong German economy to post the strongest stock gains in the entire Eurozone.

The Athens Stock Exchange (ASE) posted a 33% rise in 2012. While this might seem counterintuitive if you follow European economic news, it shows that macroeconomics rarely correlate with stock markets.

As Warren Buffet once pointed out, gross domestic product, perhaps the most commonly used measure of economic growth, doesn't line up to trends in stocks. From 1964 to 1982, the U.S. stock market was treading water as GDP quintupled. From 1982 to 1998, the stock market rose 20-fold while GDP barely tripled.

Thanks to quelled fears of an exit from the Euro, the Athens Stock Exchange bottomed out and started a steady climb from abysmal lows. Here is how the Athens Stock Exchange General Index looks via Bloomberg:

While the economic and political crisis clearly influences the market, it is all about price. After investors fled the ASE, along with any other investments related to Greece, share prices plummeted to absurdly low levels.

"We know the difficulties but it trades at 20% of book value,” stated Patrick Legland, Global Head of Research at Societe Generale. “...There are risks but they are fully discounted valuations."

For example, Metka, a Greek construction company, was trading at less than four times trailing earnings per share at $6 per share at the beginning of 2012. The dividend yield was about 8% and the company has a 20-year streak of posting profits.

After taking a beating with the rest of the companies listed through the ASE, Metka’s stock rose 64% in 2012:

There is little doubt that there are rocky times ahead for Greek companies. However, barring a currency collapse or complete and utter economic ruin, the market has already priced in the foreseeable risks. Over the long-term, a number of currently successful Greek companies will turn into incredible value investing plays.

As Legland states, "If you combine the cheapness of equities, all the liquidity and the risk of inflation – you have one of the best asset classes for the next 5 to 10 years."

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