Everett: Global Opportunities
02/13/2004 12:00 am EST
We began this report with Sir John Templeton. We end Part 1 with Jeffrey Everett, who oversees portfolio responsibilities within the Templeton Global Equity Group, founded on Sir John's principles. Everett offers a look at some very intriguing investment opportunities.
"The challenge we have ahead is that we have elections in Taiwan, in Russia, in France, and in the US. There are some 650 million registered voters in India, which is an election that makes the upcoming US one pale in comparison. The reason for global diversification in investing is so we are not beholden to developments in any one of these countries. Asia has relatively low price to book values-some of the lowest in the world- relatively low p/e ratios, and a relative valuation that is among the cheapest in the world. You have examples like this in the Asia region, which are available for the pickings, at very low valuations.
"Europe is an entirely different situation. It's a world of small numbers, with very low top-line growth, and low interest rates. Europe has also been in the headlines recently regarding takeovers. Expect to see more shopping by European companies in other European companies. Achieving profitability in a world with low inflation and low top-line growth is the result of cost cutting. Europe is still a relatively 'fat' region, but restructuring and cost cutting is taking place. But it is still a region that is inherently less attractive than Asia because of its slower growth.
"We've been underweight in America for several years. We are not bearish on America, we are just finding better values elsewhere. What Sir John saw over 50 years ago, was his vision that investors should buy values and hold on, allow them to work, whether in Asia or Europe of in the US. If you are holding individual stocks for the long term there are great opportunities in all of these regions.
"One thing that Sir John set up long ago was the focus on major forces. And one such force we see is the pricing of insurance following the 9/11 tragedy. Prices for all kinds of insurance, including directors' and officers' insurance, have gone through the roof. And from Australia to Bermuda, companies confirm that. One of the most acquisitive individuals in this market in the past year has been Warren Buffett, probably the single most important player in the world's reinsurance markets. What the property and casualty insurance business has done is essentially to 'shrink the wrapper'. Think of a consumer products company, where they keep the same package, but make the product inside smaller. If you pay the same price, but get less, that's pricing. That is exactly what the reinsurance industry has done. It's called terms and conditions. And the terms and conditions in insurance contracts have changed dramatically. And Ace Ltd. (ACE NYSE) and XL Capital (XL NYSE) are standing there, waiting to benefit. We'd also add that management from Ace are former employees from American International Group, and Hank Greenberg's son is vice-chairman of Ace. Both of these insurance firms are based in Bermuda, which gives them favorable tax treatment relative to their competitors.
"One pick in Asia is Korea's Samsung Electronics (SSNLF Other OTC). It is a tremendously innovative company. According to the US patent office last year, Samsung was #5 in the world in terms of patents granted. They are earning $7 billion- more than double what IBM did in 2002. This was an aberration for IBM, but nonetheless, it was a big deal for Samsung, which is a fraction of the market cap of IBM. Samsung has $8 billion in cash, and they have improved their corporate transparency and governance quite a bit since 1998. This is a great, shining example of what and Asian company can do when it sets it minds about earning profits.
"We also like BP (BP NYSE), formerly British Petroleum. The thing that makes the BP story so sexy relative to other major oils is that they are invested very heavily into Russia. We are a little leery of Russia on a stand-alone basis, But we love the fact that BP has 'seen the light' that is clearly there. It is a great way to play the future of Russian oil. We also like Vestas Wind Systems (VWSYF Other OTC). This company is the leader in wind turbines. I don't care who wins the US election, America needs more alternative energy production. The company has a 36% global market share. They are way out in front. We've been to see the company, and this is a place where generation after generation of the family has been genuinely at work producing wind turbines. Great story, cheap stock. And with a time frame of three to five years, this will be a big money maker."
The key risk-on and off drivers today are the same – U.S. politics, global growth, other centr...