What are we looking for?
Australian stocks that would appeal to Benjamin Graham.
More about today's screen
Benjamin Graham, the famed father of value investing, developed his bargain-hunting philosophy on Wall Street during the darkest days of the 1930s. He stressed buying cheap stocks with a margin of safety.
Many contemporary stock screens attempt to find investments that would be to Mr. Graham's liking. However, most Graham-style screens restrict their search to Canadian or U.S. stocks.
But why stop there? This week, we're going on tour and looking overseas for potential bargains. On Wednesday, we went bargain shopping in Britain. Today, we visit Australia.
To find Australian investments that might appeal to a classic value investor, we screened the Australian Stock Exchange for stocks that trade for less than 12 times earnings and for under 1.5 times tangible book. To add a dose of safety, we insisted that companies must have total debt less than half their equity and market capitalizations of a billion Australian dollars or more.
What did we find?
Twelve companies made the cut, many of them in less than glamorous industries that have benefited from Australia's long period of growth. Thanks to a wealth of natural resources, and its proximity to China's booming economy, the antipodean nation has enjoyed two decades without a recession. Its unemployment rate is a mere 5 per cent, far lower than that in Canada or the United States.
What are the risks for investors? Australia is vulnerable to a Chinese slowdown. In some eyes, it is suffering from a housing bubble. Its economy suffered its largest setback in 20 years in the first quarter after resource exports collapsed because of floods in a major coal-producing region.
Most analysts expect the country to snap back, which would be good news for the companies on our list. In addition to being cheap, most have little or no profile among North American investors.
Caltex Australia, for instance, is an oil refiner and distributor. The company also owns pipelines and terminals.
OneSteel supplies raw materials to steel mills in Australia and internationally. It recycles scrap metal and manufactures and distributes steel-related products.
Brickworks makes building products ranging from floor tiles to wall panels.
Australian Infrastructure Fund owns airports in both Australia and Europe, as well as seaports and railways.
As always, you should do your own research before investing in any of the companies on the list. But they do illustrate Australia's broad range of tempting value plays.
Ian McGugan