Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
Five Favorites from Around the World
02/12/2014 10:00 am EST
Carl Delfeld, editor of Capital Gains, takes investors around the world, with a look at his current favorite stock ideas—a bank in Europe, a Japanese robotics firm, an oil explorer in Canada, a Mexican infrastructure play, and an Australian miner.
Steve Halpern: Joining us today is Carl Delfeld, global stock expert and editor of Capital Gains. How are you doing, Carl?
Carl Delfeld: I'm fine, Steven. Nice to be with you.
Steve Halpern: You've been viewing the market volatility as an opportunity for global value investors. In fact, you see opportunity for large multinationals that offer steady dividends and strong balance sheets. Could you give us a little bit more detail in that regard?
Carl Delfeld: Sure. Well, you know, the US markets had a great year and have pulled back a little bit, and people are a little bit rattled, but I encourage them, and what we're doing is, we're digging in and finding the best value all around the world. And one place that's been overlooked is Europe.
You know, Europe is not on everyone's list as an investment destination but, actually, there're some very high quality multinationals there not tied to Europe, but tied to global opportunities.
They're cheaper than US stocks. They, in many cases, offer better dividends and, overall, European stock companies are set to deliver 14% revenue growth in 2014, so that's one area where we're looking.
Steve Halpern: Are there a few names within Europe-based companies that you would suggest investors look at?
Carl Delfeld: Sure. Well, one company that we recommended in the third quarter of last year was a bank, Banco Santander. (SAN) is the New York Stock Exchange ticker.
It is a great global bank, a little bit like a Citibank type of bank. It's got a dividend yield of 7.2%, and it's up about 28% since we recommended it, but it still has nice upside and we would recommend still buying that bank.
Steve Halpern: Now you've also looked towards Japan, where the stock market was up over 50% last year, which was its best performance in four decades.
Carl Delfeld: Right.
Steve Halpern: Could you tell us about—there's an interesting Japanese stock that you've been recommending in the robotics field. Could you share a little information?
Carl Delfeld: Sure. Japan was up strongly last year and this year it's down about 15%, so some of the froth has come off and the yen has strengthened, rather than weakened, a little bit, but still, looking forward, I would be cautious and pick stocks that have extremely high quality reputation and the one that we've recommended and still recommend is Fanuc.
The symbol is (FANUY) and it goes way back in history and it's the world's leading manufacturer of machine tools, but now they've moved into the brains of industrial robots. Fascinating company. The cheaper yen last year did drive up their exports nicely. Very strong.
They have no debt whatsoever and they have a cash stockpile of $7 billion and net profit margins of 42%. It's a very high quality play and that's where we would like to be. That's our top Japanese pick.
Steve Halpern: Now, closer to home, you see opportunity both in Canada, north of the border, and in Mexico, south of the border. Could you tell us a little about your outlook for these North American plays?|pagebreak|
Carl Delfeld: Sure. Well, resources, in general, have pulled back a bit last year. This year they're doing a little bit better and it's amazing how people, Americans in particular, don't even look north of the border to Canada, which, of course, has much lower debt loads in terms of the government debt and budget, and very positive investment climate.
And so, I would look at the resource sector in Canada, which has lagged, and one of the things that Capital Gains tries to do is, we have this intelligence network around the world and what we try to find out is what the local tycoons are investing in, and not only local ones, but global ones like Warren Buffett.
He and Bill Gates toured the Canadian oil sands late last year and Buffett followed up with an investment in a Calgary resource company called Suncor. It's not well-known, but the symbol is (SU) and that's definitely one of our recommendations.
Then, moving south to Mexico, again, in Mexico, the headlines are all negative but, actually, what's happening in Mexico is somewhat of an economic revolution.
You have a new President there, Nieto, who has done a very good job with market reforms, and the key thing about Mexico is, their manufacturing wage rates are now below that in China, believe it or not.
Some Chinese companies are manufacturing in Mexico to sell to North and South America and some are even going back to Asia. Our play there is one we've been in and out of, I really like it.
What's happening is companies from all over the world are building manufacturing facilities in Mexico to take advantage of the labor edge there, and so we invested in a company called Grupo Simec. The symbol is (SIM) and they build specialty steel, which is the frame for many of these manufacturing plants.
They export a lot of their products, and we held it once and it was up 92% in a year, and again, it's at a good entry point.
Steve Halpern: Now finally, you've suggested that there are some potential opportunities developing in Australia and you've looked at a company called Rio Tinto (RIO). Could you tell us what you see there?
Carl Delfeld: Sure. Well, Rio Tinto, of course, is, next to (BHP), probably the second biggest mining and minerals company in the world. It goes back to 1873. It's a bit volatile; but I like the fact that it's a very, I think, smart conservative play on China because, of course, China drives the prices of a lot of these commodities.
China, as you know, has been off a bit last year. It's coming back a little bit, coming back into favor, and so, I think Rio Tinto is a very smart way to play it. It's got a 3% yield.
The nice thing about it is we always look for what we call a value bounce, meaning a stock that has been off but now is turning, and we'd like to see that bounce before we move in, and it's up 8% in the last month, which is a very good sign. I have a feeling Rio Tinto is going to do very well this year.
Steve Halpern: Well, you've literally taken our readers around the globe for a variety of ideas. We want to thank you for joining us today.
Carl Delfeld: Thank you, Steven.
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