(MONEY Magazine) – The minders of the S&P 500 made a declaration on July 9 that startled the world. The committee that runs the closely followed (and mimicked) listing of the 500 most important publicly traded companies decreed that foreign corporations would no longer be included in the index. To create what S&P called "a better reflection of the large-cap segment of the U.S. equity markets," seven companies based overseas were given the proverbial boot. Those included two Netherlands-based corporations, oil giant Royal Dutch Petroleum and consumer-products behemoth Unilever. The others are based in Canada: aluminum producer Alcan, gold miners Barrick Gold and Placer Dome, nickel miner Inco and telecom-equipment maker Nortel. They were replaced by eBay, video gamer ElectronicArts, Goldman Sachs, life insurers Principal Financial and Prudential Financial, technology-services provider SunGard Data Systems and United Parcel Service.

Now we don't necessarily agree or disagree with S&P's reasoning for jettisoning these companies. But we do know this: The committee is notorious for selling low and buying high (see "Is the S&P 500 Rigged?" in our July 2001 issue). In light of this, we surveyed our favorite international investors to help us identify which of these ousted companies are attractive investments.

After careful consideration our choice is Unilever (UN), the Dutch multinational that produces a huge array of consumer staples. Over the past couple of years Unilever has made an effort to slenderize its bloated product line, which stood at around 1,600 brands in 2000. The company has since slimmed down to about 900 brands (the plan is to reach a svelte 400) and is placing its marketing muscle behind top performers such as Lipton Tea, Wisk laundry detergent and Slim Fast diet foods. As a result, sales and earnings have begun to recover. Sales were flat in 2000 but jumped a healthy 6% to $48 billion last year, and that's expected to continue, says John Spears, co-manager of MONEY 100 fund Tweedy Browne Global Value. In particular, Spears, whose fund owns 740,000 shares, likes the fact that Unilever is putting its strong cash flow to good use by reinvesting in its business rather than pursuing pricey acquisitions. Plus, Unilever continues to aggressively expand in underserved markets. "It's a pretty darn powerful business," he says. Indeed, the average analyst expects earnings to increase 11% in 2003, followed by another 16% rise in 2004.

Best of all, the stock price is alluring. After declining 20% to $53 following the S&P's dropkick, Unilever trades at 14 times estimated 2003 earnings. That's well below chief rival Procter & Gamble's estimated 2003 P/E of 19 (the S&P's is 15). Similarly, Unilever's price-to-cash-flow ratio of 7 is half that of P&G's. If that's not convincing enough, then perhaps the enticing 2.6% yield will lure you, the S&P 500 notwithstanding, to look abroad.

--Jeff Nash and Nick Pachetti

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