by Tim Melvin | November 27, 2013 12:54 pm
Over the years, I have learned from investment giants like John Templeton and Chris Browne of Tweedy Browne that the search for value needs to be global. There are more opportunities when you expand your eyes around the globe, and foreign stocks are much easier to trade now than in years past. Many foreign firms have listings in the United States and are traded just as easily as shares of IBM (IBM) or Apple (AAPL).
I sat down this morning and looked for the cheapest non-financial stocks around the planet that are easily traded and have a liquid market here in the US. I often find that this exercise gives me some valuable insights into what is going on in the world in addition to some great stock ideas.
Looking at the companies that the stock market is punishing and valuing at very low levels contains more information about the state of the global economy than all the pundits and media types can offer. Right now, while the talking heads speculate on a global recovery, a look at a list of the world’s cheapest stocks shows otherwise: Resource stocks, utilities and industrials trade at levels indicative of a very slow economy.
The cheapest stock globally right now is Korea Electric Power (KEP). The company is the only provider of electricity transmission services in South Korea, and KPEP should see steady demand increases from one of the fastest growing global economies right now. Lower fuel costs and increased utilization of its nuclear resources should allow the company to steadily improve earnings over the next several years. The stock trades at just 40% of tangible book value and is a fantastic bargain at the current price.
Couer Mines (CDE) is next on the list of global cheap stocks, trading at just 50% of its current tangible book value. Precious metals have been selling off all year because inflation is mild at best and investors continue to be concerned about global deflationary scenarios. Industrial and jewelry demand has been weak as a result of the weak economy. As the metals have fallen, miners have seen severe declines in their stock prices. I have no idea when metals prices will rebound but I am quite sure they will at some point, and this stock will rebound sharply.
Right now the third-cheapest stock in the world is AU Optronics Corporation (AUO). It makes flat-panel displays for consumer electronics such as flat-screen televisions, notebook and tablet computers, cameras and DVD players. The flat-panel business is still slow with consumers remaining reluctant to spend money now. The Taiwan-based company has almost the entire market cap in cash on the books and has very little debt, so it should be able to survive and position itself to thrive when business conditions improve. At 51% of tangible book value, AUO stock is certainly a bargain.
All of these issues are reliant on sustained global economic improvement for profits to grow, and right now that is slow to happen. Eventually, however, we will see a global recovery that allows these cheap stocks to recover and provide patient asset-based value investors without sized profits as a reward for their patience.
As of this writing, Tim Melvin was long KEP and CDE.
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