As we settle into 2014, markets have been a bit weak and volatile. These are the kind of markets that create some opportunities for the global value investor like Value Bounce subscribers.
Let’s take a quick world tour to highlight where we are looking for value to turn into momentum.
U.S. markets just finished a solid year, the best since 1997. We continue to favor large multinational with steady dividends and great balance sheets but will be very selective since prices are pretty high. Keep in mind that the U.S. stock market has not been the world’s best performing stock market in any of the last 30 years.
Let’s face it; low growth Europe is not exactly everyone’s first choice for investing. This is why it is the perfect place to hunt for bargains. A recent survey of our members shows a pivot into European stocks. Why? High quality European multinationals are not tied to Europe but seek growth around the world including the Pacific Rim and emerging markets. European stocks are also cheaper, offer fatter dividends and are projected to deliver 14% earnings growth in 2014.
Value Bounce was ahead of the game by recommending a Spanish global bank similar to Wells Fargo trading at half its average price to book value. It has a hefty dividend yield of 7.2% and, while up 28% since mid 2013, it still offers significant upside. On our watch list are companies based in dirt-cheap Austria and low cost, booming Poland.
Speaking of booms, Japan’s stock market was up 52% last year, the best in four decades years. A cheaper yen was big driver pushing up export-oriented stocks and while this will likely carry on to this year, it’s time to dig deeper to find value and quality. Our favorite right now is Fanuc (FANUC), a company using robots to make robots.
A Japanese blue chip, Fanuc is the world’s leading manufacturer of computerized numerical control devices that are used in machine tools and serve as the “brains” of industrial robots. Fanuc offers investors a pristine balance sheet with zero debt and a whopping cash stockpile of $7 billion. Profit margins are eye popping with 42% operation and 27% net profit margins. Fanuc is a high quality play on what seems to be an unstoppable trend.
Despite the country’s much lower debt and balanced budget, investors often overlook Canada. It will play “catch up” in 2014 led by energy and resources. Asian investors continue to pour money into this sector and after a secret tour of the Canadian oil sands by Warren Buffet and some other tycoons, Buffet made a big investment in Calgary-based Suncor (SU).
Moving south of the border, Mexico offers two great trends and opportunities. The first is that manufacturing wages are now below those in China. This is why American, European, Japanese, South Korean and, yes, even China are falling over each other to invest in Mexican production facilities. Always keep in mind Mexico’s geographical edge between two huge markets and ready access to all Asia-Pacific markets. I have my eye on a $2 billion NYSE stock that provides the specialty steel that supports new factories and warehouses.
The other big news is that Mexico is finally deregulating its oil and energy markets allowing foreign capital in for the first time in decades. This will create winners and losers including American energy companies that tap into this lucrative market.
Moving across the Pacific brings us to Australia and Asia.
Australia is my favorite proxy for China and with iron ore prices warming, lower costs and debt, 144-year-old Rio Tinto (RIO) is on our watch list. A member sent me a speech delivered by CEO Sam Walsh to the Australian British Chamber of Commerce less than two weeks ago and I was very impressed. I think we are close to a great entry point for the world’s second-largest resources company with a nice dividend record.
No doubt there will be many surprises in 2014 and Value Bounce stands ready to exploit them. Our goal remains to deliver to members the finest investment ideas in the world by gathering “on the ground” intelligence and staying alert, opportunistic and flexible.
Opportunity awaits,
Carl Delfeld.
I like what this all covers.