Finding Solid Companies Overseas

A new feature I’m implementing for the Enlightened American blog will be a periodic stock screen. You can expect a new screen every two weeks or so, each focusing on some segment of the investment universe.

For the inaugural edition of the screen, I am focusing on foreign ADR stocks. In a horrific 2008, U.S. stocks outperformed most foreign markets, even as the financial crisis originated from America. As such, overseas stocks may be fertile ground for bottom-fishers looking for a bounce-back. For this screen, I focused on companies with the following characteristics:

• excellent free cash flow generation within their industry
• ADR traded on the NYSE or NASDAQ
• dividend yield over 3% with a payout under 60%
• return on equity over 15%
• minimum interest coverage of 10x

Here is the spreadsheet detailing the stocks which fit the screen.

Notice that I’ve done some calculations regarding intrinsic values based on various free cash flow numbers as well as some debt coverage figures. All of these numbers were pulled off various finance websites (Yahoo, Reuters, etc), not the companies’ financial statements. Currency translations were inconsistent for some stocks and some of the results weren’t current (a problem with the Chinese companies, it seems). In any case, this screen should only be used as a basis to filter stocks for additional research, nothing more.

Most of the nine stocks seem to be fairly valued based on cash flows. The high interest-coverage requirement meant all these companies have low debt loads. Resource companies were heavily represented but a few industrials and telecoms slipped through:

• Yanzhou Coal Mining (YZC) stood out as a stock to add to the watch list based on its current price relative to past results.
• The two international telecom stocks, Turkcell (TKC) and Mobile TeleSystems (MBT), could be interesting plays on the rebounding economies / currencies of Turkey and Russia, but that trade is not for the faint of heart.
• Two industrials, Tenaris (TS) and Makita Corp. (MKTAY), showed up on the screen. Makita is an interesting high-yielding Japanese stock. The Japanese market has been in the doldrums for decades now, which may be laying the base for a bull market.
• The list was rounded out by resource plays BHP Billiton (BHP), CNOOC Ltd. (CEO), Sasol (SSL) and YPF SA (YPF). Betting on overseas commodity companies subjects investors to currency risk as well as commodity prices.

Here is the spreadsheet detailing the stocks which fit the screen.

Disclosure: No Positions

Comments

[Boubou:]

Usefull info, especially if you believe in the Schiffian collapsing dollar, which I am inclined to do in the medium term.

Feb 12 08:38 AM

[mac.barron:]

Interesting information, yes; but if you are going with ADRs you are going to be getting any gains in U.S. Dollars. That is fine if you think the U.S. Dollar can hold up, I have my doubts. My thinking is that moving forward a well balanced portfolio must contain a significant percentage of non-U.S. Dollar denominated investments.

Feb 12 07:52 PM

[bsharvy:]

Yahoo doesn't suggest a very reliable dividend from MBT:
finance.yahoo.com/q/hp...

Feb 12 08:20 PM

[yetanothert...:]

Tenaris S.A.(TS) - price went sideways for the past 4 months at/near $20. Stochastics indicates more buying than selling which is positive.

Other Steel&Iron companies are: AKS, CLF, CMC, CPSL, CRS, GGB, GNA, HAYN, HSC, IIIN, MT, MTL, NUE, NWPX, PKX, RIO, RTP, SCHN, SID, SIM, STLD, TS, TX, WOR, ZEUS, FRD, MEA, ROCK, SUTR

www.synergeticstocks.c...

Feb 12 10:28 PM

[max12345:]

"Betting on overseas commodity companies subjects investors to currency risk as well as commodity prices" (and then you mention a number of specific foreign stocks to which these words of caution might apply)

The above is certainly true. But of course it also can subject investors to significant currency opportunities. Many currencies (Australian dollar, South African Rand, and British Pound) are trading quite low against the U.S. dollar at the moment. So there could be appreciation in stock prices in the future related not only to rising commodity prices but also to strengthened underlying currency rates.

Feb 13 01:06 AM

[granger:]

Great info, always enjoy your aticles

Feb 13 06:58 AM