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What are we looking for?

Growing international leaders at lower valuations.

The screen

International equity markets have been surging despite increasing uncertainty around the structure of the European Union, unresolved and potentially pivotal election results and the impact of U.S. protectionism. The MSCI EAFE index, which measures the performance of equities from developed markets in Europe, Asia, Australia and the Far East, has posted a total return of 12.6 per cent in U.S. dollars so far this year. Given the market's rising and possibly lofty valuations, investors may be in search of higher quality companies at reasonable valuations for a better margin of safety.

To help identify a selection of potentially undervalued but profitable international companies, my colleague Lawrence Ullman and I used Bloomberg to find the top 15 companies above $1-billion (U.S.) in market cap, trading on a U.S. exchange in the form of American depositary receipts, with the best mix of:

  • Earnings yield (forward 12-month earnings per share as a percentage of latest price);
  • Free-cash-flow yield (forward 12-month FCF as a percentage of latest price);
  • Return on equity;
  • Consensus earnings-per-share estimate revision over the past three months.

More about the Ullman Group

The Ullman Group is a provider of strategic private capital management services to high-net-worth individuals, corporations, endowments, charities and foundations. 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.

What we found

Using Bloomberg, we performed a back-test starting April 30, 2007, selecting an equally weighted portfolio of the best 15 companies. The portfolio would have been reselected and rebalanced quarterly.

Over the entire period, this strategy would have generated an annualized total return (in U.S. dollars) of 8.4 per cent compared with 1.4 per cent for the MSCI EAFE 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.

International companies that offer good value

RankCompanyTickerCountryMarket Cap ($Bil U.S.)EPS Yield (%)FCF Yield (%)ROE (%)3m EPS Revision (%)Dividend Yield (%)
1Anglo American PLCNGLOY-OTCBritain17.330.814.017.916.70.0
2China Petroleum & ChemicalSNP-NChina99.78.410.
3Vale SAVALE-NBrazil43.114.215.716.420.00.0
4Rio Tinto PLCRIO-NBritain72.010.912.
5YY Inc.YY-QChina3.09.38.631.96.70.0
6Ternium SATX-NLuxembourg4.913.08.414.831.64.1
7BHP Billiton PLCBBL-NAustralia87.78.413.413.29.95.3
8Petroleo Brasileiro SAPBR.A-NBrazil62.19.611.55.412.80.0
9Teva PharmaceuticalTEVA-NIsrael31.815.316.
10Petroleo Brasileiro SAPBR-NBrazil62.
11Lukoil PJSCLUKOY-OTCRussia42.919.910.
12Cemex SAB de CVCX-NMexico12.
13BHP Billiton Ltd.BHP-NAustralia88.27.313.313.29.94.6
14PoscoPKX-NSouth Korea20.610.49.06.3148.81.7