Screening by a combination of financial metrics including P/FCF, I came up with a list of 5 stocks to watch out for in 2017 across the globe (as of January 6, 2017).
1. KDDI Corporation (Ticker: 9433, Exchange: Tokyo Stock Exchange)
KDDI Corporation is a major Japanese telecom company with a market cap of 8.02 trillion JPY (about USD 68.61 billion). The stock price recently plunged as the company announced the acquisition of BIGLOBE, a Japanese internet provider company. Apparently, the deal was not flashy enough for the market participants in Japan.
KDDI Corporation has stable free cash flow with a solid customer base. The competition is low as the telecom market is dominated with 3 companies forming an oligopoly in Japan. Considering the size of the company, it shouldn't take too long before the market realizes KDII’s low stock price relative to its value.
Price as of Jan 6, 2017: 3,060 JPY
2. Premier Inc, Class-A Shares (Ticker: PINC, Exchange: NASDAQ)
From my understanding, the company provides consulting services to health care providers. "Premier conducts business with approximately 76% of the nation’s community hospitals, managing more than $48 billion in supply chain spend and maintaining clinical, financial and outcomes data on approximately 40% of U.S. hospital discharges." (excerpt from the company's website).
Premier has had a recent downturn likely due to the market overreacting to the U.S. election results. Considering that the company seems to have a stable source of income (from 76% of America's community hospitals), I highly doubt that the (potential) abolition of Obamacare would have much impact on the company's earnings. With a P/FCF of less than 4.4 (payback period less than 4.4 years) and an ROE larger than 37.52% with almost no debt. I believe the company's stock price will surge in no time as soon as the market recovers from being rash.
Price as of Jan 6, 2017: 31.81 USD
3. Novae Group Plc (Ticker: NVA, Exchange: London stock Exchange)
Novae Group Plc is a British insurance company. Novae writes "both insurance and reinsurance in the property, casualty and marine, aviation and political risk markets" (excerpt from the company's website). The company stock priced plunged more than 20% on December 8, 2016 after "the company announced that increased losses in the second half mean its underwriting profit is likely to be lower than previous expectations for the full year. ... Management is now forecasting an overall combined ratio, a key measure of profit for underwriters, to be within the range of 98% and 100% for 2016 as a whole....(excerpt from this article)"
As the company has been quite profitable the last 3 years with an overall combined ratio of around 90% (a ratio of less than 100% means the business is profitable), the above mentioned loss seems to be a non-recurring event (though further research is required to confirm). The CEO also seems to be quite confident in the company, purchasing Novae Group shares in December 2016 and January 2017, after the plunge. Further, it seems that Brexit will not have a large impact on the company's business as more than 90% of its insurance premium income comes from countries outside of the EU. Novae has a P/FCF of 2.51 with little debt. If the company can show that the 2016 loss is non-recurring, the company's stock price should surge throughout 2017.
Price as of Jan 6, 2017: 677.19 GBX
4. Torstar Corporation (Ticker: TS.B, Exchange: Toronto Stock Exchange)
As mentioned in my valuation analysis series, the stock is significantly undervalued due to the market's negative outlook towards the newspaper industry as a whole and the company's pension plan deficit.
The main cause of the widened pension deficit is the prolonged low interest environment. The return of the pension fund has been lower than initially expected. As the U.S Federal Reserve of Bank is expected to raise the interest rate several times throughout 2017, the pension deficit should decrease. Also, the market should recognize the potential of VerticalScope, Torstar's major investment, as the company has shown continuous growth throughout 2017.
On a side note, since the company pays a good amount of dividend every quarter (roughly dividend yield of 5% at current price), the performance of Torstar should be evaluated by the total return on stock plus dividends earned at the end of the year.
Price as of Jan 6, 2017: 1.97 CAD
5. Patrizia Immobilien AG (Ticker: P1Z, Exchange: Frankfurt Stock Exchange)
Patrizia Immobilien AG is an investment management firm focused on the real estate market. I'm not entirely sure what kind of “magic” the company is using but the company recorded a ROE of 42.24%. The business seems insanely profitable. P/FCF is 2.51 so the stock price is very understated. My guess is that the share price is lower than it should be because of the market’s negative outlook on the European economy. However, I somewhat doubt that the real estate market will crash in Europe anytime soon since the European Central Bank should not be able to raise the interest rate until deflationary concern disappears.
Price as of Jan. 6, 2017: 15.86 EUR
I'll follow up on these stocks at the end of 2017 to see how they performed. Value investing should be long-term play but it's always fun to incorporate some short-term speculations into investment strategy. I might conduct a valuation analysis on some of these stocks throughout the year so keep yourself in the loop by subscribing!
What are your 5 stock picks for 2017? Leave a comment below!
Disclaimer: The list is made purely based on valuation metrics with varying degrees of research. I recommend you do your own due diligence if you decide to buy any of the stocks above. I do not own any of the stocks mentioned currently except Torstar Corporation (TS.B, TSX).