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Global Investing, Domestically
08/20/2004 12:00 am EST
Looking for global exposure without the risks inherent in investing in emerging market?Elizabeth Bramwell, president of Bramwell Capital Management, explains the benefit of global diversification via domestic-based multinationals. Here are some of her favorites.
"My basic theme is how you can invest in an expanding global economy without having to invest in emerging, unseasoned companies in foreign countries. Foreign markets are growing faster than domestic markets as they are less penetrated. You are dealing with markets where products haven’t been before. As the standard of living improves around the world and as people move up the economic ladder, demand for products increases as well. Rather than having to invest in companies offshore, you can get a lot of exposure by investing in US multinationals. When US companies do invest overseas they basically do so from an informed point of view. They have studied the cultures and the economics before they are willing to put their capital there, hiring employees there and putting their plants and equipment, and bringing their technology. So essentially, you have professional people making these decisions, and by owning these stocks you can participate in that expertise. US companies can greatly increase their sales by looking overseas. This is a very dynamic trend.
"We are in an expanding global economy and we think the US will benefit from this expansion. The population of the US is about 288 million. The world population is about 6.81 billion. Over half of that is in Asia. So markets such as India and China are growing rapidly. There has been an expansion of the middle class. The demand for all sorts of products is appearing up and down the food chain. These markets are becoming freer, and as we develop financial instruments that also allows for the development of higher priced goods—such as appliances and autos and mortgages— and this is beginning to happen in these markets. We take if for granted that we can find financing to buy homes or cars. But in emerging markets, it really takes cash. These are long, long growth curves. I believe we are really in a synchronized, global expansion. When we talk about capital spending, it’s not just the US. We think capital spending will move forward on a global basis. Overall, in order to have diversification, I think it’s important to have positions in companies with global clout.
"For the last five years large-cap growth stocks haven’t done particularly well in the market relative to small cap and value. But going forward, I think things will be on a more competitive plane, and that large-cap companies with financial abilities, marketing expertise, and manufacturing expertise will do better— and that’s where our general focus is. Indeed, the US economy is very, very strong and the outlook has been really good. I think the dynamic in terms of demand for new products going to new markets is really very different and, in particular, I think the new product cycle is very positive when it comes to consumer electronics and corporations upgrading their equipment and infrastructure.
"Dell (DELL NASDAQ) is pretty well positioned. It seems to be gaining market share in all its markets, geographically and by product line. The company is doing well in China. The expectation is that for the January 2006 year the company should earn around $1.50 so essentially the thinking is that the stock could be selling at 30 times.
"Computer Sciences (CSC NYSE) is one of our current picks. The company is a beneficiary of outsourcing of one form or another. It is in a very strong position, historically, with the US government. The company is well positioned, as it is quite involved in providing services related to Homeland Security.
"SAP (SAP NYSE) is a German software company involved in enterprise software. The company has become more flexible. This is a company that basically has been able to take enormous costs out of other global companies and help their various internal information services. The firm seems to be gaining market share at the expense of smaller companies in one area after another. We think it is very well positioned on a global basis.
"Zebra Technology (ZBRA NASDAQ) is a small company that it is in the bar-coding business. The new thing coming along in this market is its RFID technology (radio frequency identify). Basically, this is a technology that allows you to see around corners rather than a straight line. It can read bar codes through radio frequency rather than a direct line of site. Both Wal-Mart—for inventory purposes— and the Department of Defense are in the process of bringing this technology into fruition. The first large supplies of this technology to Wal-Mart will be in the first quarter of next year. As for the government, I think it really has enormous significance particularly in the area of container shipments, as it is one more tool that can help monitor the contents of containers, which is something that is not easily done now. Currently, only 2-3% of the containers coming in are actually inspected.
"I am also recommending the S&P Mid Cap 400 Spyders (MDY ASE). I think these exchange traded funds can be very useful, as you can trade them in the course of the day. I think they have an advantage over an index fund because you can buy and sell them just like stocks, whereas with mutual funds, you get the price at the end of the day. The S&P Mid Cap 400 is generally a hard index to beat so there’s some logic for those wanting mid-cap exposure to use this exchange traded funds."
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