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Tuesday, July 16, 2013

The Real Secret of Global Investing

Steven F. Udvar-Hazy Center: SR-71 Blackbird (...
Steven F. Udvar-Hazy Center: SR-71 Blackbird (tail view) (Photo credit: Chris Devers)
By Investment U

New York, Jul.16, national stock exchange .- At a global investing conference the other day, an attendee asked at the cocktail reception if I was "buying Europe." I replied that I didn't know it was for sale.

"Has it come to this?" I said. "What are they asking?"

Nobody likes a smart aleck. And it's true that European stocks are, on the whole, a better bargain than U.S. stocks in terms of sales, earnings, book value and dividend payouts. But I don't generally play the game that an investor is supposed to "buy Asia and sell Europe." Or vice versa.

If you look at our Oxford Club Portfolios, it's true that we have few holdings in Europe. (Although the ones we have are doing quite well.) But that's not because we don't "like" Europe. It's because it's hard to find companies that are growing at extraordinary rates on the continent.

This, of course, has a lot to do with anti-business policies in the region. If you're a French entrepreneur, for example, you may be accustomed to all the restrictions, regulations, mandates, red tape and taxes you have to deal with. But no international business sets up shop there without considering a lot of other options first. Capital goes where it's treated best. And what it gets in most socialist countries is a kick in the pants.

But I digress...

Worth a Closer Look

I spent 14 years writing research reports for a global investment house. We looked at currencies. We looked at governments. We looked at taxes and tariffs. But you can't successfully time the entry and exit points for various international markets any more than you can consistently time the purchase and sale of the S&P 500.

So believing Germany is a "Buy" and Britain is a "Sell" is a mug's game. However, you will find individual businesses in European countries - even France occasionally - that are worthy of your investment dollars.

Let me give you an example. I'm not terribly bullish or bearish on the economic prospects of the Netherlands, but I really like the outlook for one Dutch company: AVG Technologies (NYSE: AVG).

AVG is a leader in cybersecurity, offering free software that allows customers to surf, shop, chat, network, bank and email with confidence, knowing their personal information will not be stolen or misused.

"Free" isn't much of a business model, of course. But AVG lures customers with free security and then offers them antivirus software, advanced protection for files and downloads, anti-spyware and free phone support for a low one-year subscription price. It offers a more complete suite of products for business users.

With cybersecurity a priority around the globe, the numbers here are excellent. In the most recent quarter, earnings jumped 124% on a 26% increase in sales.

AVG should earn $2 a share this year. That makes the stock attractive at just 10 times prospective earnings. And AVG has smashed consensus estimates in each of the last four quarters. The stock is in a pronounced uptrend, rising 47% over the last year and hitting a new 52-week high last week.

This, in a word, is not your typical European stock. So while I'm neither bullish or bearish on the Netherlands, I do like the prospects for AVG.

In sum, global macroeconomic views are worth about what you pay to hear them. Yes, government policies can change the playing field, but they are difficult to predict. Currency fluctuations can increase or diminish profits, but these too are hard to forecast.

However, well-run companies with strong sales, increasing earnings, protectable margins and growing market share are worth a closer look wherever they reside. And this kind of analysis is what successful global investing is really about.
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