Nov. 16 (Bloomberg) -- Canadian insurers, builders in Spain and Paris-based Vivendi SA are enticing investors in search of cheap stocks after the steepest equity market rally in 70 years.

Shares of Manulife Financial Corp. have slipped in Toronto in 2009 even as profit at Canada’s biggest insurer is forecast to double. Obrascon Huarte Lain SA in Madrid is 23 percent below its average earnings multiple this decade, according to data compiled by Bloomberg. Vivendi, owner of the largest music company, trades at a 39 percent discount to global stocks after falling to the cheapest level in three years.

Invesco Ltd., Delaware Investments and Delphi Management Inc., which manage a combined $553 billion, are being forced to look harder for bargains after gauges of global bank shares more than doubled in eight months and computer and software makers gained 74 percent. The MSCI World Index’s 71 percent surge since March pushed the measure of 23 developed countries to the highest price compared with reported earnings since 2002, data compiled by Bloomberg show.

“A lot of the recovery in the market has been simply a recovery in risk appetite,” said Erik Granade, chief investment officer of global equity at Invesco Global Strategies, a unit of Invesco, which manages $417 billion. “Now that we’re back to more normal levels, it may be typical to see investor interest focusing on a wider area.”

Sanofi-Aventis

Granade bought shares of Sanofi-Aventis SA, the Paris-based supplier of a vaccine for swine flu that trades for 8.1 times analysts’ prediction for next year’s income, according to data compiled by Bloomberg. Sanofi has added 14 percent this year.

Stock prices in Spain, France and Germany are the lowest relative to next year’s projected earnings among the 10 biggest developed nations by market value, with benchmark indexes trading below 12.22 times profits, according to data compiled by Bloomberg. That compares with 14 for the MSCI World and ratios of 19.2 in Japan, 15.2 in Hong Kong and 14.2 for the U.S.

Overseas shares may be in even greater demand for U.S.- based managers because of the falling dollar, according to John Carey, a money manager at Pioneer Investments, which oversees more than $200 billion. Since March 5, the dollar has lost 16 percent against a basket of six currencies including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, according to data compiled by Bloomberg. That’s the biggest drop over the same number of days since 1986.

Currency Translation

“You have not only the movement on the shares, but also the currency translation,” Boston-based Carey said. “If the currency is rising versus the dollar, then you have that additional source of return when it’s translated back.”

After slumping to a 15-year low of 9.2 in November 2008, the MSCI World’s valuation using reported profits tripled since March as the index climbed 71 percent, the steepest gain in its 39-year history. The Standard & Poor’s 500 Index surged 64 percent over the same period, pushing its ratio to earnings from 10 in March to 22.3, data compiled by Bloomberg show. The advance was the sharpest since the 1930s, data show.

The MSCI World rose 1.5 percent to 1,175.40 at 4:32 p.m. in New York after U.S. retail sales rebounded and Asian government leaders pledged to maintain economic stimulus spending.

Growth Estimates

Investors looking for bargains are focusing on price- earnings ratios relative to next year’s analyst estimates, which call for average profit growth in the MSCI World index of 25 percent, data compiled by Bloomberg show. Companies in the measure will earn $67.27 a share in 2009 and $84.23 in 2010, the data show.

“Earnings growth estimates are on the high side relative to history, therefore the bar has been raised and the risk of disappointment is now more prevalent,” said Jane Davies, a fund manager at HSBC Global Asset Management in London, which has $390 billion in assets. “The positive earning surprises seen this year have been driven more by cost cutting.”

Manulife, the Toronto-based company trading for 9.5 times next year’s profit forecast, has dropped 3.4 percent in 2009 on concern it will be forced to add to reserves for annuities should stocks decline. North America’s largest insurer is projected to boost revenue by an annual rate of more than 8 percent through 2011, estimates compiled by Bloomberg show.

‘Hard Done’

“They’ve been hard done by, unfairly marked down,” said Gavin Graham, director of investments at Bank of Montreal Asset Management, which manages C$50 billion ($47 billion) including shares of Manulife, Sun Life Financial Inc. and Great-West Lifeco Inc. “What have equity markets done this year? They’re up 25, 35 percent. If you have exposure to equities, all other things being equal, wouldn’t that be a good thing?”

Sun Life, located in Toronto, trades for 9.4 times projected 2010 earnings based on its stock price of C$28.30, down 0.5 percent for the year. Winnipeg, Manitoba-based Great- West fetches 10.5 times forecast earnings. The stock added 14 percent in 2009 to C$23.62 on the Toronto Stock Exchange.

J. Chahine Capital owns shares of Obrascon Huarte Lain, or OHL, according to Chairman Jacques Chahine, who oversees $374 million in Luxembourg. The Spanish builder that operates roads in Brazil trades for 9.8 times forecasts for 2010 profit of 1.95 euros ($2.92) a share, up 11 percent from this year’s income estimate. That compares with an average multiple of 12.7 since 2001, according to data compiled by Bloomberg. Obrascon has gained 91 percent this year, including the biggest gain since Oct. 6 today.

Good Value

“Now you can buy on a more rational basis than at the March bottom,” Chahine said. “We bought OHL at the end of July. It’s a good example of value that is left. It is a good stock. We believe even buying a little late it is still a good value.”

Delaware Investments added to its stake in Vivendi five months ago, when the media and telephone company’s price- earnings ratio using estimated 2010 income fell to 45 percent less than the MSCI World’s, according to Ned Gray, who helps manage $135 billion in Boston. That was the lowest level relative to the index based on projected earnings for the next calendar year since at least January 2006. Vivendi is forecast to post a fifth straight revenue increase this year.

“The rally has left a lot of names that are far more defensive relatively weak in their stock price performance versus the more economically geared names,” said Gray. Vivendi provides “a good, consistent level of cash generation as well as a cheap valuation. They also provide a nice cushion if this economic recovery is to falter.”

Vivendi, GE

Vivendi’s dividend has increased every year since the payouts were reinstated in 2005. The company owns a 20 percent stake worth about $5 billion in NBC Universal, using the valuation Fairfield, Connecticut-based General Electric Co. and Comcast Corp. of Philadelphia have agreed upon, according to people familiar with the matter. Vivendi has an option to sell its stake every year from Nov. 15 to Dec. 10.

Finding value in the stock market today means picking companies that “fell through the cracks” during the rally, said Scott Black, who oversees $900 million as president of Delphi Management in Boston.

“Just sloshing money around isn’t very imaginative today at these multiples,” Black said. “That’s what the average idiot does. You have to look hard because the market is well picked over.”

To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Matt Walcoff in Toronto at mwalcoff1@bloomberg.net; Rita Nazareth at rnazareth@bloomberg.net.

Last Updated: November 16, 2009 16:35 EST