I was recently asked to give some investment ideas for foreign stocks and the person in question wanted the suggestions now. I have to confess when I invest I’m driven by two crucial tests.
The first test is whether the company/stock is a quality company with good growth potential, or at least strong potential to hold its formidable market share that drives the profits, dividends and share prices.
Second, is the timing right? Call me easily influenced but I can never forget the Warren Buffett advice to be greedy when others are fearful and fearful when others are greedy. It’s why I have repeatedly advised subscribers of this Report to “buy the dips” whenever market irrationality has forced share prices down too far.
That said, when we have new clients come to our financial planning business we construct a portfolio that has exposure to both local stocks and overseas ones, along with some more defensive bond-like assets. I know Buffett once joked that “diversification was for wimps” but I find most clients are a little wimpy when it comes to their money, and rightfully so.
But what I’m getting at is that there are times when some markets look good value, while at other times they’re shocking value. After my friend asked for some foreign stocks, I checked out the “traffic light” table we show our clients that assesses whether some markets are too hot to handle. Have a look at it below.
Source: Tim Farrelly and Farrelly’s Investment Strategy
This might be a couple of weeks old but it clearly shows that developed markets — the USA, UK, Europe, Japan, etc. — are in the fully-priced range. They still have upside but Australian Equities or stocks are in the fair value range so you’d expect you might be able to make money with Australian stocks easier than US ones right now.
This table tells me that ETFs such as STW and IOZ that capture the local S&P/ASX 200 index aren’t bad plays right now. However, US-based index plays via iShares’ IVV exchange traded fund have upside potential but because the S&P 500 index is in record high territory, it means a sell off is on the cards, if the right negative trigger comes along.
Mind you, I think the signing of a China-US trade deal should help this ETF go higher but a lot of this optimism has already been built in. Recent earnings news has been better-than-expected and economic data on the improve should help US stocks track higher, even if there is a sell off or two.
The chart of Netflix’s share price below shows you why I would’ve preferred it if my colleague had asked me this question in December.
I like companies people use every day and Netflix fits the bill and I’d buy it on any big sell off as I see it as a keeper company.
Disney is another after its big purchase of 21st Century Fox to create a streaming service. Once again, we’ve missed the spike on the news but over the long term, this company is a buy when stocks sell off.
Jeff Bezos, founder of Amazon, another company I like when a sell off happens, told David Rubenstein in an interview on YouTube that when the dotcom bust happened, his share price went from $US110 to $6 but nothing had really changed with the company’s profitability. Sure, there was an excessively negative guess that it might but it didn’t. That was a great time to buy Amazon, which now sells for $US1,950!
Two weeks ago on my TV show Money Talks, I pressed Charlie Aitken for his current likes for overseas companies and he came up with Estee Lauder. Once again, I wished I’d asked him in December.
This is another stock I’d buy on a sell off but over the long term you could buy as a keeper because the customers who use this stuff do it every day. I always remember what Charles Revson, founder of Revlon, told us: “In the factory we make cosmetics, in the store we sell hope.”
Out of the USA and into China and Charlie still likes Tencent. The smart guys at WCM, who run the WCMQ exchange traded product on the ASX, have this company in their top 10 holdings. These guys have been a global top five international fund performer from the GFC onwards!
This is their list of big holdings, which gives you a clue about some quality overseas companies.
Top 10 Holdings
|2. Visa Inc||3.92|
|5. The Cooper Companies||3.68|
|6. Steris Plc||3.46|
|7. HDFC Bank||3.46|
|8. Boston Scientific||3.40|
|9. First Republic Bank||3.23|
|10. Tencent Holdings||3.21|
In constructing a portfolio now, because the timing is tricky, I’d think about using top overseas fund managers, so I’d plug Hamish Douglas’s Magellan, which has had a great record. The product is the Magellan Global Equities Fund (MGE). For diversification, I’d go for WCMQ.
The team behind WCMQ has a different investment assessment approach, based on selecting companies that are renowned for their culture and whether their competitive advantage ‘moat’, which is protecting their business, is growing.
To capture the Chines tech potential, an ETF such as BetaShares Asia Technology Tigers ETF, with the ticker code ASIA makes a lot of appeal. Once again it would have been a better bet for a short-term gain if we moved in 2019 but this ETF is also good for long-term players.
And one stock that the WCM guys think is an Amazon of the future is Shopify (SHOP). Yes, it has spiked since December but it’s said to have plenty of upside.
This Canadian company listed on the NYSE was founded by Lütke, Daniel Weinand, and Scott Lake after attempting to open Snowdevil, an online store for snowboarding equipment. Dissatisfied with the existing e-commerce products on the market, Lütke, a computer programmer by trade, instead built his own.
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