Finding Value In Foreign Lands

Value investing is the core philosophy that portfolio manager Ron Holt uses to make stock selections for the Harris Insight International Fund (HILZX). Holt is the director of research at Hansberger Global Investors and is part of a three-person team that manages the fund using a bottom-up process that focuses on price-to-earnings ratios. Last year, Lipper ranked the fund in the top 17% of all international money managers. “We look across different sectors, company by company, on a global basis, trying to find the best combination of stocks that have improving fundamentals and attractive valuations outside the United States,” says Holt.

Holt spends about two months out of every year visiting companies worldwide and emphasizes how important it is for investors to have an international component to their portfolio. He says many foreign companies may be more attractively priced compared with their counterparts in the United States, but you can’t capitalize on their growth unless you look outside the U.S. market. Holt points out that countries throughout the world are now in a recovery phase after experiencing challenging economic times over the last three years, and that bodes well for growth this year.

In addition, the Japanese banking crisis, and accounting scandals at companies like Parmalat, which is headquartered in Italy, have brought more attention to corporate governance worldwide. This makes international investing less risky. “If people want to lie on their balance sheets, it’s more difficult to get away with it now,” says Holt. “We think systems are in place to minimize the possibility of negative implications going forward.”

Holt’s first selection, Kookmin Bank (NYSE: KB), is one of Asia’s largest domestic financial institutions and has a market capitalization of $13 billion. Holt says the South Korean bank has strong consumer-related businesses, namely its mortgages and credit cards, and broad exposure to large, medium, and small corporate clients that will drive its growth. “We expect Kookmin Bank to benefit from an improvement in the Korean economy, which should translate into higher loan growth and falling bad debt provisions and losses,” he says.

DBS Group (OTCBB: DBSDY) is a Singapore-based financial services institution that provides a variety of products and services to retail and corporate clients. The

bank’s strengths include its strong capital base and credit rating, and strong focus on risk management. “DBS is well-positioned to benefit from both the short-term and long-term economic growth opportunities in Asia,” says Holt. “We estimate that DBS can grow its earnings in excess of 15% per annum over the next several years.”

Holt also chooses Canon (NYSE: CAJ), a global leader in the manufacture of cameras and computer equipment. The company also makes equipment used by the semiconductor industry. Based in Tokyo, Canon consistently ranks in the top three when it comes to the number of technology patents it’s awarded. Despite the poor performance of the Japanese market over the past 10 years, Canon has posted long-term positive sales and earnings growth

and has delivered positive returns for its shareholders. Holt thinks that Canon will continue to benefit from a rising demand for its products, and it has a strong price-to-earnings ratio.

Holt’s final selection is Cemex (NYSE: CX), the world’s third largest producer of cement. Headquartered in Mexico, Cemex has production facilities in various countries in Latin America, North America, Asia, and Africa. “As the global economy continues to recover, Cemex is expected to be a major beneficiary as demand and prices for cement and cement-related products rise,” says Holt. He says Cemex could generate $400 million to $500 million a year in free cash flow that can be used to pay down debt.

Ron Holt’s Private Screening Picks

Company Exchange: Symbol	Price*	Estimated EPS Growth	Est. 5-Yr. Annual EPS Growth Rate	Why Stock Will Outperform
Kookmin Bank (NYSE: KB)	$39.87	4.27	5.89	This South Korean bank has a strong credit card and mortgage business.
Canon (NYSE: CAJ)	$50.11	2.85	12.70	This Japanese manufacturer of cameras and office products consistently delivers positive shareholder returns.
DBS Group Holdings (OTCBB: DBSDY)	$33.50	N/A	N/A	This Singapore bank’s credit rating strength should help it capitalize on growth in Asia.
Cemex (NYSE: CX)	$28.37	2.91	3.05	This Mexico-based cement maker will benefit as global recovery continues and new construction ramps up.
*STOCK PRICES AS OF MARCH 26, 2004. SOURCES: ZACKS INVESTMENT RESEARCH; YAHOO! FINANCE.