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Overseas bargain-hunting: first stop, London

What are we looking for?

British stocks that would appeal to Benjamin Graham.

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Benjamin Graham, the famed father of value investing, developed his bargain-hunting philosophy on Wall Street during the darkest days of the 1930s. Since then, an army of followers have emulated his approach. Many stock screens attempt to find investments that would be to the master's liking. However, most Graham-style screens restrict their search to Canadian or U.S. stocks.

Sticking close to home might have made sense in an era where most companies restricted their activities to a single country and it was difficult for retail investors to buy foreign stocks. In today's more globalized economy, value hunters should keep an eye open for opportunities that may lie further afield.

This week, we're going to spread our wings and look overseas for potential bargains. First stop: the United Kingdom.

While many investors avoid buying foreign stocks because of the difficulties that go along with navigating a different language and exotic accounting standards, many of those issues are minimized when looking at British stocks.

To find British investments that might appeal to a classic value investor, we screened the London Stock Exchange for stocks that trade for less than 12 times earnings and for under 1.5 times tangible book. To add a dose of safety, we insisted that companies must have total debt less than half their equity and market capitalizations of half a billion pounds or more.

What did we find?

Twelve companies, a couple of them with familiar names.

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Royal Dutch Shell, the giant oil company, meets our criteria. So does Sainsbury, the No. 3 grocery chain in Britain, which is locked in a bruising battle against the likes of Tesco.

Many of the names on the list, though, are less well known on this side of the Atlantic.

Hiscox, for instance, is a specialty insurer that makes a significant portion of its profits by catering to customers with exotic needs. It insures art works and expensive cars. It also bills itself as the world's largest provider of specialist kidnapping, detention and extortion insurance.

Shaftesbury is a property company that focuses on ultra-hip West End London. "We invest in locations close to streets traditionally regarded as prime with the aim of assembling clusters of buildings or villages where we see opportunities to create rental growth," the company says.

Kazakhmys PLC is a copper producer, with principal operations in Kazakhstan and the surrounding region.

As always, investors should do their own research before buying any of these companies. But our list may provide you with some names you would not otherwise have considered. We'll be looking at other foreign markets in days to come.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More

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