We are living in a world of anemic global growth, yet North American markets continue to march higher and set new records – which appears more a product of richer valuations (multiple expansion) than improving fundamentals. With compelling “value” hard to find in North American markets, we are setting our sights on cheaper hunting grounds – today Europe – to see whether we can unearth some bargains.
What are we looking for?
North American-listed equities of companies headquartered in Europe, which appear out of favour and that may be trading at a significant discount to their intrinsic values.
How we did it
I used the S&P Capital IQ Screener to look for stocks that meet certain value-based financial criteria. My goal was to whittle down Capital IQ’s universe of 15,000-plus North American-listed stocks to European-headquartered companies that may be temporarily out of favour and undervalued.
This is in keeping with the deep value philosophy at Lorne Steinberg Wealth Management: a great company is only a great investment if purchased at a great price.
To turn up prospects, I looked for companies that are not laden in debt and whose revenues are close to recent highs. I also weeded out companies whose earnings have fallen off a cliff (by more than 50 per cent from recent highs).
To make the grade, stocks had to possess favourable value-based metrics, such as relatively low price-to-book multiples. The list was further reduced to companies whose stock prices have dropped significantly (a minimum of 20 per cent) from their three-year high.
The accompanying chart shows the top companies sorted by the lowest forward earnings multiple, a measure that can help point to stock prices that may be undervalued and poised for a rebound.
What we found
The companies listed here are a good starting point for uncovering value. However, numbers only tell part of the story and should only be treated as a compass. When hunting for a discount, one must be mindful that things are often cheap for good reason.
Investors are strongly advised to do their own research before buying any of the stocks listed here.