We are seeing some messy markets around the world right now. Ceasefire violations and continued sanctions in the Ukraine/Russia situation are keeping tensions high and pressuring European stocks a bit.
Italy lowered its growth forecast and France has said it will delay working to reduce its budget deficit until 2017 because of weak economic conditions. Israel is still dealing with tensions in Gaza, which has been keeping a lid some stocks there. The Brazilian election has swung back toward President Dilma Rousseff and the markets there have pretty much imploded over the last few weeks. There are some pockets of ugly around the globe right now -- but ugly often equals opportunity in the stock market.
I broke out my newly modified Graham number and went searching around the globe for stocks that are cheap on both price-to-book value and Enterprise Value (EV) to EBITDA. We are not yet awash in global opportunities but I did find some stocks that make sense for long-term, aggressive investors. (Note: Some of these companies trade only on foreign markets.)
London based J. Sainsbury plc (JSAIY) is in the grocery business and also has a division that provides insurance, credit cards, savings and loans as well as an entertainment segment that sells books and movies. The stock has been down as a result of weakness in other U.K.-based supermarkets such as Tesco (TSCDY). The stock is cheap right now, as the price-to-book value ratio is just 80% and the EV/EBITDA ratio is only 4. The company faces some near-term challenges and there may be a dividend reduction in the near future, but the stock appears to be severely undervalued on a long-term basis.
TAT Technologies (TATT) is an Israeli based defense contractor that serves the commercial and military aerospace and defense industries. Their products include things like heat transfer components, electrical motors and they maintain, repair, and overhaul auxiliary power units, landing gear and other aircraft components for both military and commercial companies. The stock trades at just 76% of book value right now and the EV/EBITDA is a little less than 5 right now. TAT has no debt and almost half of its market capitalization is in cash so the company's balance sheet can allow it to survive until it can thrive again.
G. Willi Food-International (WILC) is another Israeli company that shows up as double cheap. The company processes and sells canned vegetables, pickles, canned fish, fruits, nuts and dairy products around the world. The company announced results below analyst expectation and the stock has been weak as the company faces some challenges in their domestic markets. I think that is more than reflected in the stock price as the shares have an EV/EBITDA ratio of just 3 and the price-to-book value ratio is 85% right now.
The carnage in Brazil is pretty impressive. As the incumbent president has taken control in the polls, the markets have gotten battered badly. The iShares MSCI Brazil Capped (EWZ) is down almost 20% in the last month alone. Shares of Brazilian homebuilder Gafisa (GFA) had rallied strongly earlier this year but are now plunging toward 52-week lows. Business is actually pretty good for the company. Its earnings are well above last year as are its revenues and profit margin. The company has an EV/EBITDA ratio of 2.7 and the shares trade at less than 40% of tangible book value. As measured by my modified Graham formula, this one of the cheapest stocks in the world right now.
Volkswagen (VLKAY) is on the list of double cheap stocks identified by the modified Graham formula. Volkswagen is on the verge of replacing Toyota (TM) as the world's largest auto manufacturer but fears of continued global weakness are weighing on the stock. Right now, the stock is trading at just 87% of book value and the EV/EBITDA ratio is only 3. The stock has fallen sharply in the past month but I can easily see this stock trading at double the current price over the next few years.
I have no idea how global markets will trade for the rest of the year but I suspect it is going to be a bumpy ride. Patient investors who have the fortitude to deal with the bumps could see these double-cheap stocks trading a lot higher a few years from now.