In this section, we will look at four stocks we think will give you exposure to global markets. For one reason or another we think investors should look at any of these four stocks when putting together a portfolio. When assessing them we look at the story behind these companies and we assess them both fundamentally and technically. As with all stock, these too do carry risk which we urge you, as always, to consider.
Brambles Limited (BXB)
Brambles is a supply-chain logistics company meaning they provide companies with transportation services of their goods throughout their supply-chain. BXB achieves this through the production of pellets, plastic crates and containers. Pallets are used to service companies with fast-moving consumer products or fresh produce. While containers typically service industries including automotive, oil & gas and chemical. A key provision for BXB is a model known as ‘pooling’ by which pallets, crates and containers can be reused at various points through the supply-chain. An example may be a company requires containers to transport raw materials and inputs to a production plat. The same containers may be designed to be reused and transport intermediary products to a subsequent processing plant and reused again to transport the final product. The model eliminates the need for companies to purchase their own transportation units and additionally reduces the waste produced by their processes.
BXB is the largest global provider of pallet, reusable plastic crates and container pooling services. Its large global scale allows for cost reduction and its expansive network makes it difficult for new entrants to compete. Brambles operates in over 60 countries but with its headquarters in Sydney and main operations in Australia, US and Europe. The company dominates the Australian market with 70% market share and the next closest competitor at 25% market share. Yet Brambles provides good global exposure to both the US and Europe with 55% and 25% share in their respective markets. Around 45% of revenue comes from the US and Canada, 35% from Western Europe and 8% from Australia and New Zealand. In the US, the likes of Walmart have instructed suppliers to use Brambles pallets.
The vast global network coupled with an ongoing need for supply-chain transport even through market downturn, has allowed steady and consistent growth over the last 10 years. These qualities have provided the stock with the status of defensive equity. Early this year the company released an unexpected profit downgrade which saw price drop by around 15%. This was caused by revenue and profit pressure in the US due to retailers destocking which resulted impacted pallet volumes and increased costs. In the wake of the profit downgrade, many investors have moved towards the likes of Orora and Amcor which are packaging companies and can be classed as defensive similarly to Brambles. To place further pressure on share price, there was initially fears that the emergence of Amazon would hurt the growth of Brambles particularly in Australian markets. However, the recent announcement of Amazon Go and Amazon Fresh may in fact be beneficial to Brambles. In our view, the downgrade represents an opportunity for investors to snap up the stock while it is at an undervalued price. It has an unrivalled global network and is placed well to capitalise on signs of economic upturn in both US and Europe in the rest of the year.
James Hardie (JHX)
James Hardie is a global building materials company that specialises in residential and commercial buildings. The company places a heavy emphasis on research and development to derive a cost advantage over its competitors. JHX is a world leader in the production of cellulose fibre cement which is essentially made from cellulose (plant cell material), cement, sand and water. The net result is a highly durable building material that is impact, termite and moisture resistant and provides thermal efficiency. The materials are generally used for internal walls, ceilings, internal floors, and external structures such as fences.
JHX is listed on the ASX but has exposure to North America Asia and Europe. It is heavily exposed to the US with 7 manufacturing sites in US and around 75% of revenue attributed to North America. The company also has two manufacturing sites in Australia and one each in New Zealand and the Philippians. It also exports its products all over Asia and Europe with the main importers being France and UK. With a focus on developing cutting edge technology products, there are two research sites in US and one in Australia. The company exports to a wide variety of regions, however its high concentration in the US means that it is largely influenced by changes in the US housing and construction markets.
James Hardie relies on its cost advantage and differentiated product which is supported by its research and development efforts. The risk for JHX is that lower cost competitors may cause a reduction in margins. The main US competitor is Saint-Gobain who has attempted to compete in the fibre cement industry but has had no such success to dislodge James Hardie. The company provides solid long-term growth, albeit relatively volatile due to the cyclical nature of housing markets in the US, Australia and New Zealand. This is particularly true of the US as it is a main contributor to earnings. However, the company managed to survive housing contractions in the US. Despite solid annual results released in May the share price dropped off and was blamed on increased US manufacturing costs that put pressure on profit margins. The stock will always be subject to housing fluctuations, yet if James Hardie is able to continue its strong research that will feed into its global leading products the company will continue to deliver long term rewards for investors.
Ansell is a global leader in protection solution products. The company designs and manufactures a wide range of arm and hand protection products and clothing. They operate in two main divisions: industrial, which focuses on protective wear for industrial workers such as gloves, body and footwear, and healthcare, including gloves, safety products and infection protection products. In May, the company announced it has entered an agreement to sell off its sexual wellness division for US$600 million. The sell off will allow Ansell to focus on its core products and will allow for other capital management incentives. Ansell is driven by building its brand name and reducing manufacturing costs to provide benefit.
Ansell looks to manufacture in low cost environments to give their products a price advantage. Its main four regions for manufacturing are Sri-Lanka, Malaysia, Mexico and North America. Ansell has a large portfolio of brands that are sold just about everywhere around the world. Recently ANN has had positives from emerging market regions with the likes of Russia, China, Mexico and Brazil all providing significant growth in H1FY17. Being so well diverse across a large number of regions the company is not reliant on any one particular region but rather global economic growth as a whole. Despite being listed on the ASX, the company is denominated in USD.
Innovation and new product development continues to be key drivers for Ansell. This creates an efficient new product development process which allows products to be easily tailored to customer demands and needs. Further, ANN seeks to continue its bolt-on acquisition strategy to expand its brand name and product portfolio. Both these factors make it difficult for competitors to enter the market. While Ansell’s costs are maintained at a low level as they manufacture in low cost regions coupled with high volume of manufacturing when compared with its competitors. ANN provides investors with great global exposure as its products reach a large number of regions and countries. We particularly like that they are reaping benefits from emerging markets which can be an untapped area for investors as it can be difficult to gain exposure to emerging markets.
AMP Limited (AMP)
AMP is an independent wealth management company with both an international investment management and retail banking business in Australia. The company operates through four major divisions, being Wealth Management (40%) which includes platforms and domestic funds management, AMP Capital (13%) which focuses on fixed interest and infrastructure investment management, AMP Protection (18%) the personal insurance division, and AMP Bank (10%) which includes retail banking and residential mortgages. AMP is one of the few independent advisory businesses in Australia and has set itself to capitalise on the growing superannuation industry. AMP plays an important role in the Australian wealth management space, providing a low-cost, highly diversified offering to disengaged and disinterested investors. Whilst predominately focused on Australia, AMP has begun to expand its services into Asia.
Recently, AMP has expanded into both China and Japan through a number of joint-ventures with high profile partners, including China Life Pension Company and Mitsubishi; that focus on investment, annuity and trustee services. These joint-ventures are beginning to pay dividends and are being supported by an increased uptake in these policies. A key attraction for expansion in China is that the Chinese superannuation industry is far larger than that of the Australian superannuation sector. China is faced with a rapidly aging population and is seeking a solution via pension reforms. The superannuation sector in China is still in its early stages with many predicting that there is plenty of room for growth to accommodate China’s large population.
While AMP is still largely situated in Australian wealth and superannuation sectors, the expansion to China and Japan is promising and provides the company with an additional layer of global exposure. The superannuation industry is typically pressured by unfavourable legislation changes. However, the growth into other regions superannuation provides diversification which reduces the impact of legislation risk. With both Japanese and Chinese superannuation sectors being larger than the Australian superannuation sector, there is an opportunity for substantial growth as they are both in infancy at this stage. If AMP is able to replicate its success in the Australian wealth and superannuation markets in Japan and China there will be significant long term growth benefits.