Five industry experts have selected their preferred international stock picks for Business Day’s stock watch series – Home Depot, BE Semiconductor Industries NV, Philip Morris International, Walmart, and Walt Disney.
These companies were selected by well-known South African professionals in the investment world, including David Shapiro, Jean Pierre Verster, Jonathan Fisher, and Steven Schultz.
They said the global economy is still recovering from the COVID-19 pandemic. Still, the current market volatility has made international stocks affordable and attractive to South African investors.
The international market offers investors the opportunity to diversify their portfolios with companies offering great future value at a discounted price.
Here is a list of their international stocks, with an explanation for why these investment experts find these companies attractive.
The Home Depot is the largest American multinational home improvement retailer in the United States.
Inflation contributed to a low sales growth of 3% in 2022, compared to 8.1% in the fiscal fourth quarter of 2021.
However, Shapiro noted that the retailer is a consistent performer and remains resilient despite the current inflation hikes.
The slowing revenue growth has sent Home Depot’s stock price down 20.28% year-to-date, which presents an excellent buying opportunity.
Home Depot excels at allocating capital in ways that grow the value of the business. Over the last ten years, profit margins improved from 6% to 11%.
With the retailer’s investments in new fulfilment centres and improving the supply chain, investors can expect a healthy continuation of profit growth.
Home Depot also pays out over 40% of its profits in dividends to its shareholders, and its current low valuation makes it an attractive buy.
BE Semiconductor Industries NV
BE Semiconductor Industries NV (Besi) is a Dutch multinational that designs and manufacturers semiconductor equipment.
While there are companies that produce and design semiconductors such as chips like Intel and Nvidia, Besi manufactures the machines that are used in these processes.
Geopolitical tensions surrounding Taiwan – where most chips are manufactured – have led to a significant global chip shortage, which has played a part in Besi’s YTD decline of 29%.
European and US Governments are now giving considerable subsidies to local companies to make their own chips – meaning there will be a significant demand for the needed equipment, and Besi will benefit hugely from this.
Verster believes that Besi is selling a discount, and the development of these government subsidies makes the semiconductor company a very attractive buy.
Philip Morris International
Philip Morris is a multinational tobacco company with products sold in over 180 countries. The most recognized and best-selling product of the company is Marlboro.
It plans to generate over 50% of its revenue from smoke-free products and has recently acquired Swedish Match. This company has large markets in nicotine-free products in Scandinavia and the US.
Philip Morris is a reasonably defensive and recession-resistant stock. It managed to grow revenue by 4.2% year over year in the third quarter of 2022, when many companies experienced a fall in sales.
The company has a market cap of R2.5 trillion and is trading at 15 times next year’s earnings, with a dividend yield of 4.8%.
Fisher believes that Philip Morris’s expected cash generation and strong returns make it an excellent buy.
Walt Disney Company is an American multinational mass media and entertainment conglomerate headquartered in Burbank, California.
Disney has seen a drop in its share price as it goes through a transformational reinvention.
It is due to its focus on building its streaming services, which include Disney+, Star, Hulu, and ESPN+.
While the share price dropped 38% off its high, Schultz believes that this is an opportune time for investor entry.
Disney is expected to rebound soon, as it added more than 14 million subscribers to its streaming services and now has more subscribers than Netflix.
The company’s domestic theme park sales have more than doubled from 2021 to $5.4 billion in its quarter that ended on 2 July.
These sales generated an operating profit of $1.65 billion, and management sees this momentum continuing to the next quarter as consumers show no signs of theme park fatigue.
Walmart is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores in the United States.
Two weeks ago, Walmart expected its revenue to decline by 9% and 17%, which triggered a significant drop in the retailer’s share price.
However, the quarter went much better than expected.
While Walmart’s profitability took a hit over unfavourable pricing and higher container and storage costs, operating expenses decreased slightly as a percentage of net sales, which helped the company beat earnings expectations.
Verster believes that the stock’s recent dip due to below-expectations first-quarter results offers a good entry point for investors.
Walmart’s share price is expected to rebound as it stands to benefit from the projected rise in commodity prices over the rest of 2022 and into 2023.