Where the Growth IsWhy go global now? Simple. It's where the growth is. Most economists think the sustainable rate of growth in the U.S. economy is somewhere around 3% a year. That's great -- for what's often called the developed world. Europe is growing at a roughly 2% clip at best, and some of its key economies are growing at rates near zero. Japan's growth situation is similar. But U.S. economic growth is anemic by the standards of what's still called the developing world. India and China both topped 8% in 2004 and seem able to keep matching or beating that rate in 2005 and well beyond. Even countries we aren't accustomed to putting in the "growth" category are outgaining the U.S. The Philippines is looking at growth of 5% to 6% in 2005. Even Mexico, with all the structural problems its economy has, is likely to outgrow the U.S. over the next decade. Those numbers aren't magic or some international conspiracy. They're the result of demographics. In the long run, the growth rate of an economy is simply the sum of the growth rate in population and the growth rate of productivity. Countries with younger, faster-growing populations have a leg up in the economic growth race.
Four Themes to PlayGeneral investing themes for making a profit out of this higher level of growth in the developing world aren't hard to find. I think these four, for instance, will be immediately recognizable. First there's the financial services play. As income rises in countries such as China and India, the population will consume more Western-style financial products such as credit cards and life insurance. Increased income also means increased consumption of consumer goods and services, such as travel and processed foods. Growth will drive demand for technology products such as digital cameras and the flat screens that go into laptop computers. And all of this economic growth requires huge growth in infrastructure and leads to increased consumption of raw materials such as cement, iron ore and oil. Because those four themes aren't especially arcane or complex, the obvious big-cap ways to profit from them have already been bid up -- not always to prices that make them ridiculously expensive, but to prices that are higher than those commanded by less-familiar stocks. So, for example American International Group ( AIG), one of the great financial services plays on Asian growth, trades at 16 times trailing 12-month earnings. But Prudential Financial ( PRU), one of the most successful sellers of life insurance and annuities in Japan and Korea, is much less familiar to investors looking for global growth -- and it trades at a lower 13.8 times trailing 12-month earnings. And if you're willing to take a little more risk -- and let's be honest, owning Prudential Financial is riskier than owning AIG -- and own the less well-known, "stealth" global-growth stocks, I think you can pull in higher gains that will more than compensate for the higher risk.
12 'Stealth' Global WinnersI've divided my 12 stealth global winners into four categories that correspond to the investing themes I outlined above. 1. Growth in consumption of Western-style financial services rises as incomes climb in the developing world. Prudential Financial. After 15 years of operating in Japan, the company's Life Planner marketing program sells more life insurance/annuities per agent than any competitor's marketing platform. And Prudential is rolling it out to new cities in Japan and Korea. Kookmin Bank ( KB). The largest lender in Korea holds a sizeable portfolio of loans to small- and medium-size business. As a major partner in China's economic expansion, Korea's Kookmin Bank is a safer way to play the growth in China's financial sector than China's own banks. The Wall Street consensus projection on Kookmin's long-term earnings is for 14% annual growth. ICICI Bank ( IBN). ICICI Bank continues to make progress in its transition to an Indian retail consumer bank. In the December 2004 quarter, retail assets grew 63% year over year, fee income grew 83%, and after-tax profit climbed 18%. 2. Increased consumption of Western-style consumer goods and services as incomes rise. Accor ( ACRFF). Europe's largest hotel group is driving into China, where the company is starting to open budget-priced Ibis hotels to go with its luxury Sofitels, its four-star Novotels and its three-star Mercure properties. In the fourth quarter of 2004, revenue rose (excluding currency effects) 5% as weak revenue in Europe (because of the decline in the U.S. dollar) was offset by revenue from new hotels (read Asia). Revenue in the company's travel-agency business climbed 14%. San Miguel ( SMGBY). The Philippines' largest food and beverage company has its sights set on the rest of Asia. Currently the company is embroiled in a fight to buy National Foods, Australia's largest dairy company. Besides operating in Australia, San Miguel has announced intentions to expand in China, Thailand, Malaysia, Indonesia, Taiwan and Vietnam. Corn Products International ( CPO). As incomes rise, so does the demand for processed sugars -- like it or not -- as sweeteners in soft drinks and processed food. About 18% of the company's sales are from Asia and Africa now, but Corn Products has targeted China, Pakistan and Thailand for expansion.
|Eleven Winners |
Jim Jubak's stealth blue chips
|Stock||Recommended||Price||Feb. 4 Close||Gain|
|Affiliated Computer Services (ACS:NYSE)||10/14/2003||$49.90||$53.42||7.10%|
|Applebee's International (APPB:Nasdaq)||10/14/2003||22.73||28.33||24.6|
|Brown & Brown (BRO:NYSE)||7/21/2004||42.35||43.98||3.8|
|Chico's FAS (CHS:NYSE)||10/14/2003||36.9||52.1||41.2|
|Expeditors International (EXPD:Nasdaq)||10/14/2003||37.18||56.31||51.5|
|Kinder Morgan Energy Partners (KMP:NYSE)||10/14/2003||44.17||45.37||2.7|
|Main Street Banks (MSBK:Nasdaq)||10/14/2003||25.98||32.23||24.1|
|Penn National Gaming (PENN:Nasdaq)||7/21/2004||33.14||68.89||107.9|
|SCP Pool (POOL:Nasdaq)||10/14/2003||20.4||31.28||53.3|
|Portfolio average gain||30.90%|
|S&P 500 gain, 10/14/03-2/4/05||15|
|S&P 500 gain, 7/21/04-2/4/05||10|
|Nasdaq Composite gain, 10/14/03-2/4/05||7|
|Nasdaq Composite gain, 7/21/04-2/4/05||11|
|Source: MSN Money|