Building a stock portfolio of global champions

20th Mar '23 by Paul Hill

23 comments 1112 reads

Given the acute schizophrenia flowing through the banking sector, investor portfolios need financial muscle & liquidity to get through these periods of intense volatility.

So where to look?

Well many of the world’s best companies are listed abroad. Yet equally receive very little attention in the UK, despite offering attractive returns and being relatively easy to access.

Therefore over the next few months, I plan to construct a ‘model portfolio’ of high conviction & importantly durable international stocks, which hopefully can deliver double digit returns over the medium-long term.

Here in today's first instalment, I introduce two such companies alongside running through:

Objective of portfolio. Start
What type of stocks to include. 02:50
Investing climate. 03:40
Attractive hunting grounds. 07:05
Targeted returns. 09:05
#healthcare . 11:10
Pfizer. 12:55
Roche. 19:00

Disclaimer: I own both Pfizer & Roche Holdings

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Paul Hill

20th Mar '23

Great point BnB. ThermoFisher is a terrific company. Albeit I'm looking for a slightly cheaper entry point given its PER of >20x and PEG of 1.7x at $550/share

Alphaflight

w.r.t to buying foreign stocks, it would be well worth talking about political risk and the location of custodians (brokers).

For example anyone that owned Russian ADSs listed on the LSE, NYSE, etc saw their investments frozen. Whereas people that held these stocks in other jurisdictions directly on the MOEX didn't see their investments frozen.

I buy Hong Kong stocks directly on their exchange however my broker is US based IBKR meaning that if China is sanctioned further then in all likelihood my Hong Kong stocks could be frozen (a la the Russian stocks). If I was more risk averse and less lazy then I could setup a Hong Kong broker directly (or possibly a Singapore broker) and avoid the political risk (to an extent anyway!).

For Latin American stocks I'm able to use a Brazil based broker. I can therefore purchase Latin American stocks directly and avoid their NYSE listed ADRs (e.g. Pertobras, Vale, etc). The reason I think this makes good sense is again political risk. Argentina, Brazil, Mexico are the main markets in Latin America and all three of them are de facto allied with Russia (Mexico is looking to join the BRICS as of last week in fact, Argentina is joining BRICs).

Great points Alphaflight.

That said, I'm aiming to avoid most of the geopolitical stuff, as planning to stick to North America, Europe & maybe Australia.

EM stocks are probably best accessed via a specialist ETF/fund

Harry Hindsight

Thanks Paul. Sad about small caps but need to keep and grow capital so the US and mid caps + are the focus. Keep an interest of course. Sold Volex (LON:VLX) got thoroughly depressed watching it.

Avoiding Pharma as too complex albeit risk reduced with the long term big boys as noted. Why not Astra.

Defence favourite Saab AB (STO:SAAB B) - does stuff like javelin tank destroyers, works proven and probably can’t produce enough.

Rheinmetall AG (ETR:RHM) makes ammo being depleted daily unfortunately.

Interested in who supplies BAE Systems (LON:BA.) and others rather than the elephant themself. Need some growth volatility - not interested in 5 years - 5 weeks a stretch. Coal for steel making, carbon, gunpowder etc etc. IT too complicated, like Pharma, cyber high up there but too many Palo Alto Networks (NSQ:PANW) maybe who knows.

Energy - LNG. Uranium should be easy to spot when the price moves. Oil in cartel land. Shipping is at 52wk highs so rather pick lower down, at the 100ma. Have a huge list and can’t reduce (US of course - ours are socialist cash cows).

And maybe banks in the mix however unsavoury. Feel the long list of current banks will reduce to leave a core big six. See SVR was in top 20 US banks. We have 5 is it plus some privates - lol. JPMorgan Chase & Co (NYQ:JPM) if they go then no need to worry about anything else.

Mining precious metals lithium copper should be high up there albeit the herd has woken up. Barrick Gold (NYQ:GOLD). Like Teck Resources (NYQ:TECK). Avoid the over zealous ESG ers.

shipoffrogs

An expensive barrier to investing overseas in an ISA is the requirement to convert sale proceeds back to GBP every time. So, for example, the sale of one US stock to fund the purchase of another first requires the proceeds to be converted to GBP and then back to USD - adding two layers of frictional costs at very uncompetitive rates.

I suppose it could work if one adopts a long term buy and hold strategy, but the inefficiency irks me too much to bother.

21st Mar '23

Equally though investors don't pay stamp duty, & if you're planning to 'regularly trade' these stocks - then its best to consider a broker that allows you to hold foreign currencies too, rather than just sterling/£s.

Great comments Garry

IMO AstraZen is a best-in-class biopharma that I DEFINITELY would own again at lower prices. Today though at £108, the shares trade on around 18x-19x PER - which albeit certainly not expensive, is not super cheap either.

Similarly I also like defence giants Saab (28x), Rhienmetall (17.7x) & Bae (15.7x) who all are well placed to benefit from continued geopolitical concerns. Although I'm hoping there'll a ceasefire in Ukraine sometime over the next 6-12 months - which might provide a better opportunity to buy.

BnB

Paul, you want global champions, but you want them at Graham-like PER of 15x. Outside of value sectors, and barring market fits, when everything goes on sale, that strikes me as counter-productive. Champions cost more because they win more! Pfizer is cheap because there are no near term catalysts for its re-rating and it faces a patent cliff. AZ is pricey because of multiple imminent pipeline events that should drive outsize growth. Which is a champion?

BnB - Pfizer's drug pipeline (irrespective of Covid) is pretty compelling (see below). Indeed IMO, occasionally (amid indiscriminate sell-offs) you can have your cake & eat it.

Hence I'm trying to be super selective. GARP at rock bottom prices.

I’m all for GARP. I just don’t think you can expect to buy “global champions” for a GARP price outside of market fits and value sectors. The term implies Microsoft, Visa, ASML, Nvidia, Diageo, Nestle, Honeywell, LVMH, EssilorLuxotica, Thermo Fisher etc, all of whom comfortably exceed your valuation parameters.

I’m sure you think I’m being overly pedantic. But you used the term ‘global champions’ and that invites scrutiny if you’re replacing the genuine champions with something ‘good enough’.

Re Pfizer. My bank has downgraded to hold and slashed the PO by 22%.

Don't worry BnB. Life will go on mate...

My best return this year have been in Argentina of all places, their stockmarket has out performed the the US markets. Many of the Agricultural Brazilian stocks are still cheap also.

The problem with EM ETFs in this environment is that they are listed on western exchanges meaning they can potentially be weaponized (sanctioned) one day as I found out with HSBC's HRUB and Van Eck's RSX ETFs.

Also EM performance depends hugely on the US$.

Indeed it will. I’ve lived through worse than a bout of questionable taxonomy :-)

Gold is now being sold because banks have suddenly become good stewards of money - till tomorrow or the next day lol.

And oilers up because er recession avoided.

What the hell is this market.

Stocko keeps me away from the duds which at the start of my journey still hold a few in the large coffee can.

Energy / Defence / Precious Metals - enough to focus on.

Doomberg and Frisby in the sector selling podcasts but can't spend more money on research than making in profits - otherwise my personal stockrank would be around 5 :)

IKBR trade in dollars once converted. Have a dollar and GBP accounts and ISA although not investigated again in both currencies. Don't spread bet US. Find their platform too complicated but they are liquid, small spreads and seem good custodians. Have got money out quickly which is a good test imo.

22nd Mar '23

Personally Garry - I never use spreadbets, CfDs, options or margin, for 2 main reasons.

1st & foremost I'm a long term investor & therefore don't bet on S/T momentum/sentiment as the hit rate is far too low. And 2ndly, >75% of people who spreadbet LOSE money.

Investing is tough at the best of times. Why make it harder?

23rd Mar '23

I struggle using Best Of The Best (LON:BOTB) - spot the ball is gambling albeit love the offers almost irresistible. Everyone loses on spread bets but lots lose on the market as well THG (LON:THG) Heiq (LON:HEIQ) Boohoo (LON:BOO) - starting learning on spreads, not involved in CFD's yet or FX or Crypto but for sure not interested in some peanut dividends for high inflation high risk environments.

But we need our ISAs Pensions etc - or just clear debt, buy property and gold coin.

Third bid drops in for Manchester United (NYQ:MANU) so have a small spread bet win £40, lose £60. All good fun. Pays for todays expenses hopefully - or tomorrow soup (again).

(Caveat - please be aware gambling is not good and if it was the government will likely tax take away shortly).

24th Mar '23

As long as people treat gambling & spreadbetting as a bit of light entertainment that they readily afford - then why not enjoy yourself.

No different to going down the pub, partying, etc

Building a stock portfolio of global champions

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Paul Hill

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