I am one of the few people who will admit this, but I have no interest in the World Cup. I have tried to watch soccer and I just cannot do it. It puts me to sleep faster than golf. I have no intention of watching any more of the games than I see accidently on EPNS's "Sports Center" in the evening. While all eyes are on the matches starting today, I thought it might be interesting to have a World Cup of my own and see if I could find the cheapest stocks in the world and pit them against each other in a battle for long-term profits.
This morning, I sat down and ran a simple screen of stocks outside the U.S. with ADRs listed here that trade below book value, and then ranked them in ascending order. I added some liquidity requirement as well, so that the contenders could actually be bought easily by U.S. investors. I have to say that this process eliminated some very cheap, very interesting stocks and intrepid value-oriented investors would find it worthwhile to run the screen themselves without liquidity qualifiers. As usual, I also eliminated Russian and Chinese stocks as Isimply do not trust either nation to act in my best interests over time.
Host nation Brazil is one of the favorites to win the World Cup, as I understand. They are a leader in global cheap stocks as well. Brazilian stocks started rallying earlier this year when polls showed that President Dilma Rousseff was losing support ahead of the election in October. As her popularity has faltered, the market has risen, but there are still a lot of cheap stocks after years of underperformance. Electric company Centrais Electricas Brasileiras (EBR) is trading at just 20% of book value. Home builder Gafisa (GFA) changes hands at 46% of tangible book value. Telecommunications giant Oi (OIBR) fetches just 46% of book value right now. Petrobras (PBR) is priced at just 65% of its tangible book value right now. Even if Ms. Rouseff manages to hang on and win reelection, the voters and the markets are telling her that she needs to bring her policies back towards the center and allow business to get back on track and lead the economy higher.
I do not know if Luxembourg even has a soccer team, but they host one of the world's largest and cheapest integrated steel companies. Arcelor Mittal (MT), the international giant with headquarters in Luxembourg, is trading at just 69% of book value and should see revenues and profits improve substantially as the global economic recovery begins to gain traction over the next few years. The company has repeatedly told investors that they think the bottom is in for the steel industry. At least one research firm sees the firm's EBITDA almost doubling between now and 2017. The Mittal family owns 38% of the company and would seem to have a vested interest in seeing the stock price climb back towards the pre-crisis highs of more than $80.
Greece made the World Cup but no one seems to expect much from them. It makes my list of nations with lots of cheap stocks as well, and I fully expect it to be among the world beaters over the next decade. The Greek shippers are all still very cheap. Paragon Shipping (PRGN) is trading at just 47% of book value and Dry Ships (DRYS) is at just 60% of book value right now. Global Ship Lease (GSL) is also very cheap at just 53% of book value. I think the recapitalization of the Greek banks will ultimately prove to be successful and like Eurobank Ergasias (EGFEY) at 70% of book value.
Canada didn't make the World Cup this time around but out Northern neighbor is home to two of my favorite cheap stocks in the world right now. I just wrote about both Resolute Forest Products (RFP) and MFC Industrial (MIL) last week so I won't go back over all the details, but I like both stocks as potential long-term winners.
I have no idea who will win the World Cup and really do not care much at all. I suspect the powerhouse popular teams will do well, but when it comes to the World Cup of stocks, it is those that are out of favor and struggling of late that are the ones I want to bet on for long-term profits.
Now I have to go watch some baseball, read a book and try to ignore the soccer barrage that is about to take over the media for a few weeks.