What are we looking for?
Potentially undervalued companies from around the world.
The screen
Global markets have been generally strong as of late, with relative strength coming from markets such as Hong Kong (as measured by the Hang Seng index) and Britain (FTSE 100), which have posted three-month gains of 16 per cent and 11 per cent, respectively. Closer to home, the Nasdaq composite is up 10 per cent, the S&P 500 is up 6 per cent and the S&P/TSX composite is up 5 per cent over the same time frame. Following these rallies, analysts are considering many regions to be fairly valued.
In order to uncover potentially undervalued global companies with room to grow, my colleague Lawrence Ullman and I used Bloomberg to list the top 20 stocks from around the world with market cap above $1-billion (U.S.) and the best mix of:
- Price-to-earnings, price-to-cash flow, price-to-book and price-to-sales ratios;
- Three-month consensus earnings estimate revisions.
As an attempt to avoid value traps, we also limited results to companies with return on invested capital (ROIC) greater than 5 per cent; three-month estimate revisions no worse than minus 15 per cent; and price changes over the past one- and three-month periods no worse than minus 10 per cent (not shown).
More about the Ullman Group
The Ullman Group is an independent provider of strategic private capital management services to high-net-worth individuals, corporations, endowments, charities and foundations.
What we found
We used Bloomberg to perform a back-test starting July 31, 2001, reselecting an equally weighted portfolio of the top 20 qualifying stocks every three months.
Over the 15-year period, this strategy would have generated an annualized total return of 18.8 per cent (in U.S. dollars) compared with 5.8 per cent for the MSCI World index.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. Investors should contact a professional or do their own research before investing in any of the stocks shown here.
Craig McGee, CFA, is a portfolio manager and Lawrence Ullman, MBA, is a director, wealth management and portfolio manager with the Ullman Group at Richardson GMP in Toronto.
Richardson GMP Ltd. is a member of Canadian Investor Protection Fund. Richardson is a trademark of James Richardson & Sons Ltd. GMP is a registered trademark of GMP Securities LP. Both used under licence by Richardson GMP Ltd.