Stockmarket indices can be a poor reflection of reality. Mega-cap technology stocks in the US have had an overwhelming impact on returns, but this obscures the fact that the average global stock has only recently recovered from a hidden bear market dating back to early 2018.
While there is much to like about the US tech giants – deep “moats” (entrenched competitive advantages that fend off potential rivals), high returns on capital, piles of cash and appealing long-term growth potential – there are excellent businesses out there trading at much more attractive valuations. Great investment ideas come in many different shapes and sizes and it always pays to cast a wide net.
A top Taiwanese chip maker
Taiwan Semiconductor Manufacturing Company (Taipei: 2330) has many of the same attractive fundamentals as its US peers. TSMC is more dominant in chip manufacturing than its largest customer, Apple, is in smartphones, yet it trades at a substantial discount to its American client. As the world’s dominant manufacturer of logic semiconductors, TSMC stands to benefit from powerful long-term tailwinds in artificial intelligence (AI), cloud-computing and 5G-wireless broadband.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
None of these technologies will be possible without leading-edge semiconductors and TSMC is one of only two remaining players who can make them. We believe TSMC can continue to grow its earnings at around 15% per annum over the long term while maintaining its very high returns on equity (a key gauge of profitability).
A leading US health insurer
Having a new resident in the White House almost always leads to fresh debate about the future of the US healthcare system. Historically this has been a source of opportunity for investors. Leading US health insurers such as Anthem (NYSE: ANTM) have rarely traded at demanding valuations, despite delivering superior fundamentals.
Since 2000, Anthem has delivered earnings-per-share growth of 16% a year compared with 6% for the S&P 500 index. The combined tailwinds of an ageing population, rising incomes and expansion of health coverage to more people should continue to fuel above-average profit growth. There will no doubt be considerable volatility and heated political rhetoric, but history has shown that changes in the US healthcare sector have been gradual rather than revolutionary, and the likes of Anthem are an important part of the system.
Luxury car group roars ahead
BMW (Frankfurt: BMW) is one of the world’s highest-quality car manufacturers. Of the 1,600 companies in the FTSE World Index ex-US in 1990, fewer than 80 have delivered earnings-per-share growth of more than 10% per annum since then, and BMW is one of them. It has generated a return on equity of 15% over the long term and has compounded earnings at a rate well above most businesses in any sector for several decades.
It is a remarkable achievement and a testament to the family-controlled company’s discipline, culture and premium brand value. The pandemic has been a setback in the short term and BMW will also need to adjust to a future where electric vehicles are more common, but we are confident that the group has the expertise and financial strength to navigate these headwinds successfully over the long term.
-
Review: Trasierra – a yoga retreat in the Spanish hillsFlora Connell joins a yoga retreat at Trasierra, in the Sierra Morena mountains north of Seville
-
How much should I have in emergency savings?When your boiler breaks or your car won’t start, you can find yourself paying a hefty bill. How much should you have in emergency savings to cover unexpected costs?
-
Cash in on the growth prospects of Europe's companiesOpinion Marcel Stötzel, co-portfolio manager of the Fidelity European Trust, selects three stocks
-
Global investors have overlooked these top tips in emerging marketsOpinion Chris Tennant, co-portfolio manager of Fidelity Emerging Markets, picks three attractive companies in emerging markets
-
Leading companies cashing in on India’s compelling growth prospectsOpinion Ewan Thompson, manager of the Liontrust India fund, highlights three companies he thinks are well-positioned to generate attractive economic returns
-
Should you invest in emerging markets?Emerging markets offer strong, long-term growth and excellent value, says Rupert Hargreaves
-
The best ways to invest in Vietnam – Asia’s communist dynamoVietnam has long been one of our favourite markets. The prognosis remains auspicious, says Alex Rankine.
-
India is a new global powerhouse — should you invest?India’s growth rate has slowed recently, but there is still ample scope for investors to benefit from its development.
-
Three companies that dominate their markets with critical productsA professional investor tells us where he’d put his money. This week: Charlie Huggins, manager of Wealth Club’s Quality Shares Portfolio, picks three stocks.
-
Should you continue to hold Smithson Investment Trust?Opinion Smithson Investment Trust, a small- and mid-cap fund, has struggled to live up to lofty expectations, says Rupert Hargreaves.
