6 Beaten-Up Foreign Financials

I spend a large part of my day searching for new investing ideas. In the past couple of months, I've found myself turning to our Motley Fool CAPS service a bit more often, because I can quickly filter stocks based on how they have performed over the past month or year and on the CAPS star rating.

What is CAPS? It's a community-intelligence database in which investors rate stocks. In turn, every investor is ranked based on his or her performance, as is every stock.

Once I have a few companies to look at, I can dig into the pitches from various investors and get a feeling for how some of them think about the company. This is perhaps the most important step, because if my opinion is different or there is something about the company I wasn't aware of, it opens the door to more research.

U.S. financials out of favor now, such as Sovereign Bancorp (NYSE:SOV) and Citigroup (NYSE:C), which are rated one and three stars, respectively, in CAPS, are potentially interesting, but I'm also interested in diversifying away from the dollar a bit. With that in mind, I set out to see if the stocks of any foreign financial firms that trade on major U.S. exchanges have struggled in the past year. The results from CAPS are below, including the price-to-book value, which expresses a company's valuation in comparison with the value of its assets.

I must admit that when I went hunting for foreign financials, I was a bit surprised that only three in that category had negative returns and that all were from Japan. The expected gross domestic product growth for Japan this year is 2.6%, and a slightly lower 2.2% is expected next year. Not exactly rapid growth, but GDP growth benefits financials a great deal, and growth above 2% for Japan is a vast improvement compared with the past 10 to 20 years. Given this scenario and the current valuations, I'd say these three are worth looking at, and Orix appears to be the most interesting, given its well-regarded management and expansion outside of Japan.

To get a slightly broader look at what's happening with foreign financials, I also ran a screen looking for financials around the world that don't trade here and have negative returns in the past year. Because our CAPS database primarily focuses on companies listed on the major U.S. exchanges, I wanted to see if non-U.S. financials had been strong in general -- and they have been quite strong. Out of more than 80,000 financials located outside the U.S., only about 1,400 had negative returns over the past year. To filter the list down a bit more, I added the following criteria: The firms had to have a market cap above $1 billion and a three-year compound annual growth rate of 10% or higher for both tangible book value and earnings before interest and taxes.

This left me with eight companies. The three worst performers are below, and the over-the-counter ticker has been provided if available.

Keops and JD Group are the most interesting to me, because the CAPS list already provided three Japanese options that are more liquid and easy to invest in. I'm particularly interested in JD Group, a company from South Africa, because it provides consumer financial services and I expect that country will continue to see gradual improvements in consumer spending and GDP growth. Unfortunately, getting my hands on JD Group is likely to prove difficult or expensive, because its shares appear to trade only in South Africa.

Given the strength in foreign financials in the past year, finding a strong performer that is out of favor isn't going to be easy. The exception to this might be Japan, where financials have struggled a bit. That said, it's impossible to know when foreign financials will turn out of favor, and alliances between exchanges and global trading platforms are likely to increase. I'm more than happy to have a short list of companies to keep an eye on and snatch up one or two when the opportunity presents itself.

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Nathan Parmelee had no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy. Nathan was ranked 424th out of 27,046 CAPS investors at the time of publication.