Sarah Ketterer (Trades, Portfolio), CEO and chief portfolio manager of Causeway Capital, creates shareholder value through her top two mutual funds: Causeway Global Value Fund and Causeway International Value (Trades, Portfolio) Fund. A previous article discussed Ketterer’s recent investments in the Global Value Fund.
While the Causeway International Value (Trades, Portfolio) Fund shares some characteristics with the Global Value Fund, the International Fund seeks long-term capital investing through a “fundamentally different approach” to international value investing.
As discussed in Ketterer’s prospectus, the International Value Fund invests about 80% of its assets in company stocks trading in developed stock markets outside the U.S. and up to 10% in emerging markets. During the second quarter, the fund made three new buys: Baidu Inc. (BIDU, Financial), Komatsu Ltd. (TSE:6301, Financial) and Cobham PLC (LSE:COB, Financial). These investments align with the fund’s investment strategy: low valuations, strong dividend yields and high financial strength.
The International Value Fund purchased 548,900 shares in Baidu at an average price of $175.62. As discussed in the previous article, Baidu has strong financial strength and low valuations compared to other global online media companies. As of Aug. 30, Baidu has a lower price-book (P/B) ratio than 67% of global Internet content and information companies. The company also has a lower price-sales (P/S) ratio than 75% of companies in its industry.
The mutual fund also purchased 3,413,200 shares in Komatsu and 16,068,945 shares inCobham. The companies averaged 1,860.96 yen per share ($18.22) and 1.50 pounds ($1.97) per share. The International Value Fund traded in Komatsu in the past five years. The fund bought about 1.1388 million shares of Komatsu in the first quarter of 2014, raised its stake in the position every quarter and sold all shares in the first quarter this year.
The Japanese farm and construction equipment company currently has a financial strength rank of 6, implying a moderately strong business operation. While Komatsu’s P/B and P/S ratios are less than 2, both ratios are lower than just 55% of companies in its industry. The company’s dividend yield, however, outperforms 64% of global farm and construction equipment companies. Additionally, Komatsu’s dividend yield has increased since 2010.
Among the mutual fund’s three buys, Cobham PLC has the weakest business operation. The British aerospace and defense company has a financial strength rank of just 5 and experiences mild distress based on its Altman Z-score. Despite contracting operating margins and returns on equity, the company still has a profitability rank of 6, implying moderate growth potential. The company has low P/B and P/S ratios, and its dividend yield of 5.92% outperforms almost all companies in the global aerospace and defense industry. Additionally, the company’s dividend yield steadily increased during the past 10 years, from about 2% to its high of 7%.
See also
As mentioned in the previous article, you can create customized screeners using the All-in-One Guru Screener. Based on the mutual fund’s investing strategy, we can generate the “Ketterer International Screener” using the following filters:
- All U.S. stocks and over-the-counter stocks are excluded.
- The company’s financial strength rank is at least 7.
- The company has a price-earnings (P/E) ratio less than the 30th percentile of its industry.
- The company’s P/B and P/S ratios are lower than the 30th percentile of the industry.
- The company’s trailing dividend yield is at least 4%.
- The company’s price to free cash flow is at most 3.
As of Aug. 30, the following 10 stocks met all of the above criteria.
You can also backtest your customized screeners using the new “Backtesting” feature located within the All-in-One Screener. This feature allows you to track the performance of a model portfolio that meets all the active filters. Premium members can backtest up to three years. To backtest for up to 10 years, you need to upgrade to Premium Plus. Additionally, Premium Plus members have access to the Manual of Stocks for all companies and more than 4,000 13F, 13D and 13G filings from the Securities and Exchange Commission.
Disclosure: The author has no position in any stock mentioned in this article.
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