Yesterday's trip around the world with Walter Schloss only produced a few ideas worth considering. Today I want to take a different traveling companion and use the F-score model developed by professor Joseph Piotroski and see if we can find any investable international stock.
The higher a stock scores on the model, the stronger the financial conditions of the company, and used in conjunction with price to book value has produced market-beating results since Piotroski released his research back in 2000. I screened the world outside the U.S., again excluding Russia and China, and found a few names worth considering.
Arcelor Mittal (MT) is on the list again. I have held this stock with pretty much a null result for a couple of years. I will hold it until we finally get some sort for strengthening in the global economy that produces higher steel prices. The company faces headwinds from a strong dollar and weakness in emerging nations like China and Brazil, but as CEO Lakshmi Mittal said in the last earnings report, "Offsetting the impact of these headwinds is a priority and we are focused on achieving a 15% reduction in mining costs and improving the competitive position of our U.S. operations. Importantly, we still expect to remain free cash flow positive and further reduce net debt over the course of the year." The company has done a fantastic job of paying down debt, which fell to $16.6 billion as of March 31, 2015, compared to $18.5 billion a year earlier. The stock currently trades at 70% of tangible book value with an F-score of 6.
Someday the global economy will recover. When it does, this stock will be a market leader and my patience will be rewarded with huge returns from original costs basis. If the stock goes to half of the pre-crisis highs and it takes 10 years from the date of my original purchase, I will earn more than 17% annually. Should it go back to the highs, it would be an annualized return of over 25%. If you think the world will get back on track someday, you should own this stock. If you don't think the world will recover, you should eschew stocks in favor of canned food and ammunition.
Noble (NE) provides offshore drilling services to the oil and gas industry and, like all offshore drillers, the stock is cheap. Day rates for offshore rigs are being held down by an oversupply of rigs and weak commodity pricing, and that is probably not going to change in the near term. Noble is almost certain to cut the dividend, and I would buy if figuring on at least a 50% decline in payout to preserve cash balance. Although Noble repurchased $100 million of stock in the first quarter, I would expect activity to slow to a crawl as well. The news surrounding the stock might suggest running away, but at 60% of book value with an F-score of 6, the numbers say buy. I think patient investors with a private equity mindset will be rewarded over time for holding the stock.
LG Display (LPL) makes the LCD screens that are used for flat-screen televisions, computer monitors, mobile phones and tablet computers. The Korean company has seen sluggish sales and earnings for a few years as consumers simply are not in any rush to spend money on large discretionary purposes like electronics. A recent report from industry research firm Display Search showed that prices for panels are continuing to fall, and that has put additional pressure on the stock. However, the company is a supplier for Apple (AAPL) products and is developing TVs that use organic light-emitting diodes that have a lot of potential to drive revenues and profits in the years ahead. The stock is cheap right now. The shares trade at just 86% of book value and the F-score of 8 tells me prospects and financial conditions are strong.
Stocks that trade below book value and have high F-scores have historically delivered market-beating returns. Although the list of global stocks that meet these conditions is shrinking, just like it is here in the U.S., there are still some safe and cheap stocks worth consideration by long-term investors.