Dividends and A global search for undervalued firms

Where ever you live, you have a bias for that country, for you live there. However around the world there are companies doing similar things that companies in your country are doing. It is good to look outside your borders to see if other companies are undervalued although there are risks for doing so. There are currency risks, taxes, and you need to set up a easy method to follow the companies either on a macro or micro level however there is money to be made outside your borders.

Last month Craig McGee of Ullman Group at Richardson GMP in Toronto looked at companies from around the world using Bloomberg and if you had invested in the top 20 stocks every 3 months, there would be changes but your return would have been 18% as opposed to 6% on a MSCI World Index fund. Another reason to buy quality.

Mr. McGee and Mr. Ullman used the following criteria:

  1. market cap above $ 1 billion.
  2. comparisons of price to earnings (P/E), price to cash flow (P/CF), price to book (P/B) and price to sales (P/S) ratios.
  3. return of invested capital (ROIC) of greater than 5%
  4. dividend yield

Company       Country                Mkt Cap     P/E      P/CF     P/B     P/S    ROIC    DivYield

Tongyang Life  South Korea     1.10            6.46     3.87      0.52    0.19     47.35     5.44

Peugeot            France                 11.98          7.59      1.69      0.92    0.20       9.33     0

Frontline          Bermuda              1.30           2.22     1.31      0.89    0.34        9.85     19.21

Meritz Fire Ins   South Korea     1.51            7.92    4.27     0.84    0.26       41.94      3.73

Nissan Motor   Japan                  41.94          7.90    3.50      0.89    0.34          5.36       0

Cosan                 Brazil                    1.87           8.56    1.65      0.97     0.44          6.31      1.31

EDP                      Brazil                  2.73           8.28     3.34      0.89    0.72         9.67     4.14

BKW                   Switzerland        2.40         7.54     3.72       0.84    0.82         9.65      3.66

Hyundai Insur  South Korea      2.50         10.04   7.73       0.72    0.20        42.99     2.40

Lotte Chemical  South Korea    8.63         7.83      3.76      1.16     0.80         12.11       0.88

Mr. McGee did 20 stocks and this chart was printed in Globe and Mail on August 23.

Linking to dividend paying stocks, we all have a bias and that is good. Recognizing it makes you a better investor. Most people start with their home country and then branch out to whatever industry sector you are in, that is normal. This is what you concentrate on and can easily follow so you should know when the cycles are. All stocks around the world go through the economic cycle, the dividends companies continue to pay dividends through the economic cycle. This is when you have the opportunity to buy more or use the dividends to diversify or do something else with the money (it can add to living standards).

There are more questions than answers, till the next time – to raising questions.



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