These Foreign Stocks Are Likely To Outperform

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Oct 10, 2014
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Using the GuruFocus All-In-One Screener, I searched for large cap stocks with the highest Piotroski F-Score of 9 that are trading on the international exchanges. The Piotroski F-Score is a system based on the fundamentals of a company. It was developed by Joseph Piotroski who earned his Ph.D. in accounting from the University of Michigan and is now an associate professor of accounting at the Stanford University Graduate School of Business.

The F-Scores are in a range of 0-9 based on nine different criteria. If the company has positive characteristics for a certain criteria, it receives 1 point and all of the points are added up. Piotroski back-tested his idea and found that buying only the companies that scored the highest (8 or 9) over the 20-year period from 1976 to 1996 led to an average out-performance over the market of 13.4 percent. The resulting stocks have met all of the following criteria, and therefore, have the highest score of 9.

  1. Return on Assets – Net income before extraordinary items for the year divided by total assets at the beginning of the year. Score 1 if positive.
  2. Cash Flow Return on Assets – Net cash flow from operating activities (operating cash flow) divided by total assets at the beginning of the year. Score 1 if positive.
  3. Change in Return on Assets – Compare this year’s return on assets to last year’s return on assets. Score 1 if it is higher.
  4. Quality of Earnings (Accrual) – Compare cash flow return on assets (2) to return on assets (1). Score 1 if cash flow return on assets is greater than return on assets.
  5. Change in Leverage – Compare this year’s leverage (long-term debt divided by total assets) to last year’s leverage. Score 1 if leverage is lower.
  6. Change in Working Capital (Liquidity) – Compare this year’s current ratio (current assets divided by current liabilities) to last year’s current ratio. Score 1 if this year’s current ratio is higher.
  7. Change in Shares in Outstanding – Compare the number of shares outstanding this year to the number outstanding last year. Score 1 if there are fewer shares outstanding this year.
  8. Change in Gross Margin – Compare this year’s gross margin (gross profit divided by sales) to last year’s gross margin. Score 1 is this year’s gross margin is higher.
  9. Change in Asset Turnover – Compare this year’s asset turnover ratio (total sales divided by total assets) to last year’s asset turnover ratio. Score 1 if this year’s asset turnover ratio is greater.

Fuji Heavy Industries Ltd (TSE:7270) is largely composed of its Subaru Automotive business (93.3% of revenue). Its other businesses are aerospace (5.2%) and industrial products (1.2%). The company is headquartered in Tokyo, Japan. The stock’s primary exchange is the Tokyo Stock Exchange, and it trades OTC in the U.S under the symbol, FUJHY. David Dreman of Dreman Value Management is the guru we follow holding the stock with 839 shares of the stock trading OTC in the U.S.

Market Cap: ¥2.59 Trillion ($24.01 Billion), P/E: 12.30

Business Predictability: 1/5, Financial Strength: 8/10, Profitability & Growth: 8/10

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Canon Inc (TSE:7751) manufactures and sells office multifunction devices, plain paper copy machines, laser and inkjet printers, cameras, and lithography equipment. It is headquartered in Tokyo, Japan, and its primary exchange is the Tokyo Stock Exchange. The stock also trades on the NYSE in the U.S. under the symbol, CAJ. The stock on the TSE is held by David Herro of the Oakmark International fund. He has 24.2 million shares, representing 2.16 percent of the shares outstanding. Charles Brandes of Brandes Investment is the largest shareholder of the gurus for the stock trading on the NYSE. He has 3.36 million shares, representing 0.3 percent of the shares outstanding.

Market Cap: ¥3.78 Trillion ($35.04 Billion), P/E: 15.40

Business Predictability: 1/5, Financial Strength: 8/10, Profitability & Growth: 7/10

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BT Group Plc (LSE:BT.A) provides communications services worldwide. Its main activities are the provision of fixed telephony lines and call, broadband, mobile and TV products and services as well as managed networked IT services. The company is headquartered in London, England, and its primary exchange is the London Stock Exchange. It also trades on the NYSE in the U.S. under the symbol, BT. Jim Simons of Renaissance Technologies is the only guru we follow that holds the stock with 1.58 million of the shares trading on the NYSE, representing 0.2 percent of the shares outstanding.

Market Cap: £30.05 Billion ($48.20 Billion), P/E: 15.10

Business Predictability: 1/5, Financial Strength: 7/10, Profitability & Growth: 6/10

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Suncor Energy Inc (TSX:SU) operates as an integrated energy company primarily focusing on the development of petroleum resource basins in Canada’s Athabasca oil sands. The company is headquartered in Calgary, Alberta, and its primary stock exchange is the Toronto Stock Exchange. It also trades on the NYSE in the U.S. under the symbol, SU. The Signature Select Canadian Fund is the largest guru shareholder of Suncor on the TSX with 1.28 million shares, representing 0.09 percent of the shares outstanding. Warren Buffett of Berkshire Hathaway is the largest guru shareholder of the stock trading on the NYSE with 16.5 million shares, representing 1.12 percent of the shares outstanding.

Market Cap: C$54.96 Billion ($49.18 Billion), P/E: 14.50

Business Predictability: 1/5, Financial Strength: 7/10, Profitability & Growth: 9/10

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SK Hynix Inc (XKRX:000660) manufactures and markets DRAM and flash memory products and CMOS image sensors. The company is headquartered in Icheon-si, South Korea, and its primary exchange is the Korea Exchange. The stock is not held by any of the gurus we follow. Value Partners previously held 381,000 shares, but sold out of its position in the second quarter of 2013.

Market Cap: â‚©31.36 Trillion ($29.25 Billion), P/E: 9.70

Business Predictability: Not Rated, Financial Strength: 8/10, Profitability & Growth: 7/10

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Mitsubishi Electric Corp (TSE:6503) manufactures and sells electrical products and systems worldwide. Its segments include: Energy and Electrical Systems, Industrial Automation Systems, Information and Communication Systems, Electronic Devices, Home Applications and others. The company is headquartered in Tokyo, Japan, and its primary exchange is the Tokyo Stock Exchange. It also trades OTC in the U.S. under the symbol, MIELY. 435,000 shares trading on the TSE are currently held by the T. Rowe Price Japan Fund, representing 0.02 percent of the shares outstanding.

Market Cap: ¥2.84 Trillion ($26.33 Billion), P/E: 25.30

Business Predictability: 1/5, Financial Strength: 8/10, Profitability & Growth: 7/10

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Central Japan Railway Company (TSE:9022) commenced operations in 1987 upon the privatization and breakup of the Japanese National Railways. The core of JR Central’s operations is the Tokaido Shinkansen, the main transportation artery linking Japan’s principal metropolitan areas of Tokyo, Nagoya, and Osaka. The company is headquartered in Nagoya, Japan, and its primary stock exchange is the Tokyo Stock Exchange. It also trades OTC in the U.S. under the symbol, CJPRY. 44,600 shares trading on the TSE are currently held by the T. Row Price Japan Fund, representing 0.02 percent of the shares outstanding. David Dreman of Dreman Value Management holds 4,019 of the shares trading OTC in the U.S.

Market Cap: ¥2.83 Trillion ($26.23 Billion), P/E: 11.10

Business Predictability: Not Rated, Financial Strength: 7/10, Profitability & Growth: 8/10

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Panasonic Corp (TSE:6752) manufactures and sells various electronic and electronic products under the Panasonic brand name worldwide. It is headquartered in Kadoma, Japan, and its primary exchange is the Tokyo Stock Exchange. It also trades OTC in the U.S. under the symbol, PCRFY. The stock is not held by any of the gurus we follow. Charles Brandes of Brandes Investment and Dodge & Cox were the latest gurus to hold the stock. They closed out of their OTC positions in the third quarter of 2013.

Market Cap: ¥2.88 Trillion ($26.70 Billion), P/E: 55.49

Business Predictability: 1/5, Financial Strength: 5/10, Profitability & Growth: 6/10

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The Piotroski F-Score can be screened at GuruFocus using the All-In-One Screener. You can check the results periodically to see if any new investment opportunities appear. The screener can also be used for exchanges across the globe with the Global Membership.

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