The truth is that while something on the order of 11,000 stocks trade here in the U.S., shares of more than 50,000 companies trade around the world. More than 1,800 companies trade on one of the various U.S. exchanges, giving us unprecedented access to foreign securities.
As value becomes harder to find in the domestic markets, it makes a certain amount of sense to cast your eyes on the international markets in search of long-term returns.
John Templeton was once the first investor to apply the concepts of value investing to international markets and in the process, earned a fortune for himself and his investors.
He once remarked, "It's not easy but if you're going to buy the best bargains, look in more than one industry, and look in more than one nation." He went on to add in a speech during his career, “The other boys at Yale came from wealthy families, and none of them were investing outside the United States, and I thought, 'That is very egotistical. Why be so shortsighted or near-sighted as to focus only on America? Shouldn't you be more open-minded?'”
Other value investors such as Charles Brandes and Tweedy Browne have enjoyed a great deal of success following the path that Sir John blazed back after World War II.
Look Around the Globe
Looking around the world today for stocks that are cheap shows many opportunities for investors to buy stocks trading well below book value with outstanding long-term prospects. While many global markets have moved up due to fiscal stimulus policies in many of the developed nations, shares were so cheap that they still trade well below book value and historic levels.
European banks continue to be very cheap on a price to book value basis. These banks were hit hard when the credit crisis became global and lost substantial amounts of money. Conditions and stock prices have improved somewhat, but the stock are still cheap enough to attract the attention of long-term value investors.
French banking giant Societe Generale (OTC:SCGLY) teetered on the edge of oblivion at the height of the credit crisis, but has since managed to recover. Things are not perfect for the bank with loan losses still historically high, but conditions have been steadily improving over the past year. With the shares trading at just 70 percent of tangible book value, the stock is worth further consideration by long-term value-oriented investors.
Commerz Bank (OTC:CRZBY) is another European bank that flirted with oblivion, but has made it back from the edge of disaster. The bank entered what was basically a shotgun marriage with Dresdner Bank at the height of the crisis and the acquisition has been tough to digest. In addition, Commerz Bank is a major lender to the shipping industry, and that industry collapsed as the economy worsened. Many loans to the industry went sour quickly.
Conditions are slowly improving. At 45 percent of book value, the shares are potential bargain with the potential for huge returns in a sustained global recovery.
The industry that created so many of Commerz Bank's problems is now starting to show some signs of recovery, and many of the leading global shipping companies trade well below tangible book value. The over capacity that has plagued the industry is slowly disappearing as older ships are scrapped and fewer new vessels are being ordered.
Tsakos Energy Navigation (TNP) is one of the leading shippers of petroleum, and its byproducts and the shares of the Greece-based company currently trades at just 32 percent of its tangible book value. The dry bulk shippers are seeing some improvement in rates as the Baltic Dry Index has taken a sharp turn upward in the past few months. Diana Shipping (DSX) carries dry bulk cargo such as iron ore, coal, grain and other materials around the globe and the shares fetch just 80 percent of tangible book value right now.
It will likely be a long, slow and somewhat bumpy journey for the shipping sector, but many of these stocks will trade at several multiples of the current quotation over the next few years.
Restricting investment endeavors to just domestic stocks severely limits opportunities to find bargain issues with strong recovery potential. Expand horizons to think globally and increase the odds of outsize returns from buying deeply undervalued securities.
Tim Melvin is a value investor, money manager and writer. He has spent the last 27 years as in the financial services and investment industry as a broker, adviser and portfolio manager. He has also written and lectured extensively on the markets with his work appearing on RealMoney.com, DailySpecualtion.Com as well as several print publication including Active Trader and the Wall Street Digest. Click to watch Tim Melvin's FREE webinar and learn how to break through volatility using his value stock strategy.
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