MegaCap International

I’ve been trying to figure out how to pull together info on international stocks since that is where the vast majority of my portfolio will be invested for the foreseeable future (like decades). I’m gonna split them into three groups — megacaps (market cap over $50 billion); large cap (market cap $15-50 billion); and mid/small.

Megacap stocks are mostly moved by institutional/ETF index money. There is little point in a minnow doing fundamental research here since everyone else is – and the sheer money flow of ETF’s and such renders it pointless anyway. My main criteria for picking the megacaps below is “what other big money – apart from indexers/ETF’s – owns these stocks”. If they have a good track record – low risk and high returns and low trading/turnover – then it seems reasonable that these megacaps will slightly outperform their megacap peers. The main value of megacaps is a)instant diversification with only a few names and b)no need to pay a pseudo-index manager and c)in this credit environment, the mega get credit and the small get shafted. These stocks are grouped by broad sector – and within each sector ordered by preference. To create a diversified international portfolio, pick one from each sector.

Tech/Telco:
Taiwan Semiconductor (TSM) – the 800lb gorilla of semiconductor manufacturing. Yields 3.7%. In this credit environment, it has a huge advantage since it now requires $3 billion to build a semi foundry. And tech is in a bit of sweet spot now with mobile, cloud computing, smartphones, tablets, etc all merging. Tech can grow and it has been 15 years since the last tech revolution.

America Movil (AMX) – dominant cellular provider in Latin America. Yields 1%. It is using its dominance (and resulting cash flow) in Mexico to expand throughout the continent and now has 190 million subscribers. Reasonable growth prospects. If LatAm currencies appreciate v the dollar; then there is big financial leverage.

Canon (CAJ) big in optics, semiconductors, printing, etc. Highly cyclical businesses and suspended its dividend in 2008. It has strongly outperformed the Japanese market and its survival of both a deflationary home economy and declining-price/margin businesses makes it a potential monster going forward.

Finance
Standard Chartered (STAN – London; SCBFF on pinks) – dominates “former British empire” banking. Yields 1.6% . Specializes in trade/corporate/private banking — not commercial/mortgage lending – so a healthy balance sheet. Will be able to take advantage of weak competitors in its core area – East Asia, Indian Ocean, Middle east, and Africa. Biggest risk is potential sovereign debt defaults – ate a few billion with Dubai. But a combo of diversified high growth areas – and the ability to mint money with a global yield curve makes this worth looking at.

Health
Novartis (NVS) – combines one of the only drug companies with a good new drug pipeline and one of the biggest generics businesses. Yields 3%. The patented drug business is disappearing globally. Socialized medicine does not reward innovation – and emerging markets don’t respect intellectual property. But NVS is gonna be one of the 2/3 survivors in both patented and generic drugs. They have been using hefty cash flow to diversify into specialty health and other businesses. Their stock price is not at all reflective of their underlying business. It has simply been dragged down by the entire industry. Once the “empty pipeline” companies start dying, the survivor stocks should rally as the industry becomes oligopolistic. And healthcare is both very depression-resistant and has great growth potential in emerging markets.

Consumer
British American Tobacco (BTI) owns big brand names in emerging markets. Yields 3% and company buys lots of shares so share price is always protected from downside. Tobacco is a huge cash cow business. Only risk is that governments also love this cash cow for tax revenues – but that ain’t new news.

AmBev (ABV) dominates beer and bottles Pepsi throughout Latin America. Dividends and buybacks are ad hoc – but very smart. Recession resistant – and still good growth potential in its markets.

Tesco (TSCO – London; TSCDY on pinks) dominant British food retailer and expanding fast internationally. Yields 4.3% One of only three globally feared retailers along with WalMart and Carrefour. Recession proof and excellent growth business in emerging markets. Still a bit dependent on UK.

Nestle (NSRGY on pinks) I didn’t realize how big this food company is and how many brands it owns. Yields 2.3% .

LVMH (LVMUY on pinks) is the one-stop conglomerate for luxury goods from champagne to fashion. Yields 2% . Is likely to have a tough few years in the West — but growth in Asia is serious.

Energy
BG Group (BG – London; BRGYY on pinks) is a large upstream gas company with significant LNG operations. It has large reserves of stranded gas from Kazakhstan to India to Egypt and now in Australia, Brazil and the US. Highly highly levered to natgas prices in consuming countries – but globally diversified so not like a US natgas company. Yields 1%

CNOOC (CEO) is a semi state-owned Chinese upstream oil company. Yields 2.6% I would normally view state-ownership as a risk – but CNOOC is likely to be the major beneficiary of the Chinese governments scramble to own oil resources around the world. And unlike the big integrateds, the money that the Chinese government spends doing this is not going to be taken out of CNOOC shareholders pockets. And the Chinese don’t give a rip about pollution/spills/etc in faraway places. Ugly way to invest but it is gonna happen and better that I profit from it than that the profits just go to sharks all round.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: