I am often asked which stocks I like at a given point in time, and the list of obscure little companies and small banks that I roll out leaves associates with glazed eyes and confused looks. They want to know about the well-known blue chips … but the simple truth is that right now, no big U.S. stocks are cheap enough for me to consider.
I can screen blue chips based on price-to-book or enterprise-value-to-EBITDA (the two most useful valuation measures, in my opinion) and I just come up blank. I know some point to forward price-to-earnings ratios to identify a few that are cheap, but that’s a lot like predicting the 2016 World Series winner based on which team will draft the best high school player next year.
Fun to talk about perhaps, but pointless in fact.
If I point my screener outside the U.S., however, I am able to find a few blue chips that are cheap on my favorite measures. Japanese stocks have been weak for much of the past year and there are a few bargains to be had.
Cheap Blue Chips to Buy – Mitsubishi UFJ (MTU)
Mitsubishi UFJ (MTU) is a world-class banking and financial services stock that is trading at just 65% of tangible book value right now.
In addition to its core operations, Mitsubishi owns 22% of Morgan Stanley (MS) and is looking to expand in the U.S. MTU also has a majority stake in Bank of Ayudhya in Thailand.
Mitsubishi plans to focus growth plans on the U.S. and Asia, so you have global exposure in the two strongest regions with Mitsubishi UFJ.
Cheap Blue Chips to Buy – Nippon Telegraph & Telephone (NTT)
Nippon Telegraph & Telephone (NTT) is the largest telecommunication company in Japan. In addition to all the usual telecom services, Nippon Telegraph also has financial services operations as well as real estate and construction interests.
NTT stock has fallen about 10% in the last month and is now trading at 1.25 times book value. Moreover, it has an EV/EBITDA ratio of just 3.5, so the stock is fairly cheap at current levels.
Cheap Blue Chips to Buy – Honda Motor Corp. (HMC)
On a price-to-book value basis, Honda Motor Corporation (HMC) is one of the cheapest large auto manufacturers traded in the U.S.
HMC stock has been weak this year as the Japanese economy continues to struggle somewhat. But U.S. sales remain strong and were up 12% in the most recent report.
Honda also is expanding in India, where sales have been brisk, rising 49% in the first five months of the fiscal year. In August alone, the seven-seater Mobilio saw sales surge by 88% year-over-year.
Expansion in the pro-business nation makes a lot of sense and bodes well for Honda’s future.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.
