Duplicating the Success of Sir John Templeton

Sir John Templeton was one of the world’s greatest investors. But, his investment philosophy is less widely studied than the philosophy of more famous investors like Warren Buffett or Peter Lynch. This is unfortunate because Templeton’s wisdom can help small investors succeed.

Templeton started his Wall Street career in 1938 and would eventually gain some degree of fame as the founder of one of the world’s largest international mutual fund company. Templeton was among the first to recognize the power of global diversification. The mutual fund company he founded, now part of the $720 billion Franklin Templeton Investments family, was a pioneer in making global markets accessible to the individual investors.

No matter where in the world he was looking for investments, Templeton followed a value approach. He also believed in buying when others were panicking. He consistently picked nations, industries, and companies hitting rock-bottom, what he called “points of maximum pessimism.”

Templeton may be most famous for the time he took the strategy of “buy low, sell high” to an extreme. When war began in Europe in 1939, he borrowed money to buy 100 shares each in 104 companies selling at $1.00 per share or less, including 34 companies that were in bankruptcy. Only four turned out to be worthless, and he turned large profits on the others. By the time the war ended, but his overall investment had returned more than 200% in about six years.

Templeton entered the mutual fund industry in 1954, when he established the Templeton Growth Fund. With dividends reinvested, each $10,000 invested in the Templeton Growth Fund Class A at its inception would have grown to $2 million by 1992, when he sold the family of Templeton Funds to the Franklin Group. In 1999, Money magazine called him “arguably the greatest global stock picker of the century.”

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Although Templeton bought at the beginning of World War II, his approach can be applied any time.

This week, we turned to the stock screener at FinViz.com. To begin with, we limited our search to stocks trading on the New York Stock Exchange (NYSE). The reason for this is because the NYSE has more stringent listing requirements than other exchanges. In order to trade on the exchange, a company must have a minimum amount of equity and assets and meet a number of corporate governance requirements. Prior to listing, the company must have recorded at least $100 million in sales in the past twelve months and have a history of significant earnings. Smaller NYSE-listed companies generally have stronger financials than companies that trade on Nasdaq or other exchanges. By limiting our search to NYSE-listed companies, as Templeton did in 1939, we are imposing a minimum quality standard.

The next criteria we select is that the stock price must be less than $1. When we ran this scan, there were 78 NYSE-listed stocks trading below $1.

To narrow the list, we focused only in stocks headquartered outside of the US. This is consistent with Templeton’s global view of the stock market. This left is with 22 companies.

Next, we wanted to add a criterion that incorporated Templeton’s focus on value. We selected the price-to-sales (P/S) ratio for this. We chose the P/S ratio to include as many companies as possible. Using earnings would restrict our list too much since not all of the companies will have earnings. They should all have sales and the P/S ratio provides a benchmark for value. We limited our list to stocks trading with a P/S ratio of less than 1.

Our FinViz screen is shown below.

Eight companies passed our screen. Buying 100 shares of each would cost less than $800 and could result in a double digit gain for the portfolio in time.

China Gengsheng Minerals, Inc. (NYSE: CHGS) manufactures mineral-based, heat-resistant, energy-saving monolithic refractories, functional ceramics, fracture proppants and fine precision abrasives. The company employs over 1,300 people and sells its products throughout the iron, steel, oil, glass, cement, aluminum, and chemical industries.

LiqTech International, Inc. (NYSE: LIQT) provides technologies for gas and liquid purification by manufacturing ceramic silicon carbide filters. The company manufactures and sells ceramic silicon carbide membranes for liquid filtration under the LiqTech, Cometas, and Provital brand names, which are used for the filtration of produced water, pre-filtration of reverse osmosis drinking water, industrial applications, producing clean drinking water, and waste water treatment. The company also offers diesel particulate filters for exhaust emission control solutions to the verified retrofit and the original equipment manufacturer market; and kiln furniture for the refractory industry to support ceramics that create additional space to maximize the number of items for each firing.

This next one is interesting, a Chinese box manufacturer. If the economy is growing, demand for boxes is growing. This could be a pure play on China’s economic growth.

Orient Paper, Inc. (NYSE: ONP) produces and distributes paper products primarily in the People’s Republic of China. The company offers corrugating medium paper used in the manufacture of cardboards; offset printing paper for the publishing industry; digital photo paper to advertising and printing companies for use in multiple-color printing; and local photo studios to produce special event and personal home printouts. The company also provides tissue paper products, including toilet papers, boxed and soft-packed tissues, handkerchief tissues, and paper napkins, as well as bathroom and kitchen paper towels under the Orient Paper brand name.

Samson Oil & Gas Limited (NYSE: SSN) is an Australia based company that engages in the acquisition, development, exploration, and exploitation of oil and natural gas properties primarily in North Dakota, Montana, and Wyoming, the United States. It owns working interests in the Hawk Springs project that is located in Goshen County, Wyoming; Rock Springs West projects, which are located in Sweetwater County, Wyoming; North Stockyard project that is located in Williston Basin, North Dakota; and Roosevelt project, which is located in Roosevelt County, Montana. The company also owns working interests in the State GC Oil Field that is located in Lea County, New Mexico; Sabretooth Prospect, which is located in Brazoria County, Texas; and Rainbow Project that is located in Williams County, North Dakota.

China Pharma Holdings, Inc. (NYSE: CPHI) develops, manufactures, and markets generic and branded pharmaceutical, and biochemical products to hospitals and private retailers in the People’s Republic of China. It offers products in the form of dry powder injectables, liquid injectables, tablets, capsules, oral solutions, and granules. The company’s products are used for the treatment of central nervous system and cerebral-cardiovascular, anti-infection and respiratory, and digestive and other diseases. The company offers its products through distributors, as well as through its network of 16 sales offices and approximately 1,000 sales representatives.

InspireMD, Inc. (NYSE: NSPR) is involved in the development and commercialization of proprietary MicroNet stent platform technology for the treatment of complex coronary and vascular diseases. It offers MGuard prime embolic protection systems for use in patients with acute coronary syndromes, notably acute myocardial infarction, and saphenous vein graft coronary interventions; and CGuard carotid embolic prevention systems for use in carotid artery applications. The company is also developing NVGuard, a neurovascular flow diverter that diverts blood flow away from cerebral aneurysms and seals the aneurysms. InspireMD, Inc. distributes its products in Europe, Latin America, the Middle East, and Asia.

American Lorain Corporation (NYSE: ALN) develops, manufactures, and sells various food products in the People’s Republic of China. The company also provides convenience foods comprising ready-to-cook food products, ready-to-eat food products, and meals ready-to- eat products consisting of meal kits with self-heating devices or microwavable kits, such as microwavable rice boxes for military use, as well as for camping, traveling, and other occasions. The company markets and sells its products to supermarket chains, mass merchandisers, wholesalers, and others, as well as to third-party distributors. It also exports its products to the Asia Pacific, Europe, the Middle East, and North America.

Banro Corporation (NYSE: BAA) engages in the exploration, development, and production of mineral properties. It primarily explores for gold. The company holds a 100% interest in 4 gold properties, including Twangiza, Namoya, Lugushwa, and Kamituga comprising 13 exploitation permits that cover an area of approximately 2,612 square kilometers in the South Kivu and Maniema provinces of the Democratic Republic of the Congo. It also owns 14 exploration permits covering an area of approximately 2,638 square kilometers located between the Twangiza and Namoya properties.

It might be difficult to find a diversified portfolio for less than $1,000. But the Templeton way is one method that has been proven to work.