You've doubtless read that U.S. stocks are historically cheap. You may even have happened across someone proclaiming that now is the time to buy them. Indeed, investing guru Warren Buffett wrote an editorial The New York Times published in October titled bluntly, "Buy American. I am."

And, yes, U.S. stocks do look cheap today compared to past valuations. Google (Nasdaq: GOOG), for example, trades for 37 times earnings today, compared to a five-year average P/E of 67. Superior operators Procter & Gamble (NYSE: PG), PepsiCo (NYSE: PEP), and McDonald's (NYSE: MCD) trade for just 14, 16, and 15 times earnings, respectively, but over the past five years averaged an earnings multiple above 20.

If you expand your horizons, however, you will find that U.S. stocks today are not as cheap as they seem.

But first ...
Your goal as an investor is to buy the best quality business for the least amount of money. In order to do that, you must constantly be analyzing and rejecting ideas that either (1) aren't cheap enough or (2) don't offer sufficient quality.

But neither "cheap" nor "quality" exist in a vacuum. Both require context. That context is what I set out to provide when I asked and set out to answer the question, "What country's stocks are the cheapest in the world?"

So I fired up my institutional research software and started crunching numbers.

The panoramic view
As it turns out, when put in the context of other high-profile global markets, U.S. stocks are not cheap. In fact, they look quite expensive. But you be the judge:


EV/EBITDA* Ratio (Avg.)

EV/Sales Ratio (Avg.)

South Africa






























*Enterprise value divided by earnings before interest, taxes, depreciation, and amortization. EV/EBITDA used to adjust for cash and compare operating earnings. Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool Global Gains research. Data as of May 21, 2009.

Within the context of these 10 high-profile markets, the U.S. market checks in as the second-most expensive. And that's second only to China, a country with far superior growth prospects.

The real cheap
It turns out that the world's cheapest stocks are to be found in South Africa, Turkey, and Japan, three countries with drastically different prospects and risk profiles. And in fact, you may look at this table and decide that despite being cheap, South African stocks such as Net 1 UEPS (Nasdaq: UEPS) and DRDGOLD (Nasdaq: DROOY) are not for you due to the unpredictability of new president Jacob Zuma, the gut-wrenching volatility in the rand (its currency), and ongoing social unrest.

Perhaps, however, you're intrigued by Turkey. Though 2009 will be dicey, the country has posted solid GDP growth -- and that growth should resume as energy prices rebound and as Turkey benefits from its position as the gateway between the Middle East and Europe. While Turkey has its shares of problems, stocks there such as Turkcell (NYSE: TKC) could be big winners given continued growth and current valuations.

The best business at the lowest price
Sir John Templeton was one of history's greatest investors, and the secret to his sauce was simple. He took a global perspective in his universal search for value constantly seeking to answer the question, "Where does the greatest bargain lie?"

Thus, he searched the world for the highest-quality cheapest stocks he could find and earned superior investing returns as a result.

You can do the same, provided you're willing to take a global perspective today -- and we can help you do just that at Motley Fool Global Gains. Our international stock research team provides two stock recommendations each month as well as boots on the ground intelligence from around the world that's helping our picks beat both U.S. and international benchmarks by nearly 4 percentage points on average.

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Tim Hanson is co-advisor of Motley Fool Global Gains. He blogs about international investing here and does not own shares of any company mentioned. Turkcell is a Global Gains recommendation. Google and Net One are Rule Breakers picks. PepsiCo is an Income Investor selection. The Fool owns shares of Procter & Gamble and has a global disclosure policy.