Well known value investor and manager of the 3rd Avenue Value Fund, Marty Whitman has made public through his latest investor newsletter in April that 39% of his fund is invested in Hong Kong-based companies and that he sees extreme value in Hong Kong real estate companies while revealing a bearish outlook on U.S. stocks. As the Applied Finance Group (AFG) is expanding its coverage globally, we have created a report to highlight some of the companies we find attractive in Hong Kong.
Below is a look at 15 attractively priced Hong Kong stocks based on AFG’s valuation metric. These companies rank high in valuation, have a non-sell default recommendation, and are expected to improve their profitability in the next fiscal year according to AFG’s Economic Margin Framework (the company's earnings above or below its true cost of capital). Our Economic Margin Framework is a systematic approach to converting as-reported accounting data into a performance metric that is comparable across time, peers, industries and even countries while eliminating many of the accounting distortions caused by GAAP.
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15 Attractive Hong Kong Companies
The table below shows the Percent to Target returns in each country when we compare Top Half and Bottom Half backtest strategies vs. the entire universe. AFG's default valuation works well across sectors, styles, industries and even different countries.
Source: AFGView Databases:
World Return is the weighted US$ return for the 17 countries shown. It is calculated by converting each country's return into US$ returns and weighting them at its beginning period country market caps.
*Canada data begins 6/30/2004, Taiwan data begins 2/28/1995.
Equal Weighted, Monthly Re-balanced Total Returns.
AFG's global insights include:
AFG's Valuation Metric – Measures the percent to target (deviation between a stock’s current trading price and its AFG current default target price). To derive the intrinsic value of a firm, AFG uses its proprietary Valuation Model (modified discounted cash flow model).
Economic Margin - A corporate performance measurement that addresses the gaps in GAAP, eliminating distortions caused by accounting policies to measure what a company is truly earning above or below their cost of capital.
Management Quality – Assesses management’s ability to make wealth creating decisions.