How to Choose the Best Global Value Stocks to Buy

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It's no surprise investors are having a hard time finding strong stocks to buy.

After all, nobody's getting too excited about the recent rally. Europe is about to implode, Japan's in a coma, China's suffering a slowdown and the United States faces the possible fiscal cliff.

That's why I was talking to fund manager George Fraise of SGA Global Growth (MUTF: SGAGX) the other day, to find out where the growth - and potential for profit - is in the global market.

Fraise said he's very bullish on global value stocks, and outlined his strategy for picking the right ones.
 

Factors for Picking Global Value Stocks to Buy Now

Fraise's recipe for finding the right value stocks to buy comes down to five characteristics:
 

  • A high degree of pricing power. He's looking for companies that have a lot of control over the prices they set.
  • A high degree of repeat revenue. He wants companies whose products and services are used frequently and need to be replaced regularly.
  • Global opportunity. This brings long periods of growth that in turn give investors the confidence to stay with investments for long periods. Fraise stays with companies he invests in for an average of three to five years.
  • Financial strength. He looks for companies that generate a lot of free cash flow, because they can then return that cash to shareholders in the form of higher dividends or share repurchases.
  • Good management teams. That means finding management teams that have demonstrated they're good stewards of shareholder capital.

I asked Fraise if he had any criteria for finding stocks to buy that are outside the slow-growth, mature markets of the United States and Europe - say, for example, companies for which 50% of revenues are generated outside the United States or Europe.

Fraise said picking companies based on these five characteristics might lead to a list of 60 to 70 companies, of which SGA would hold 25 to 30 at any given time. Those companies generate more than 50% of their revenue outside the United States, even the U.S.-based companies.

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