Alternative Avenues for Investing in International Stocks – TheBull.com.au

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Since 1986 Australia based economics advisory firm Deloitte Access Economics has published an annual ASX Australian Investor Study.  The 2017 study is replete with interesting factoids, including the percentages of Aussie investors holding investments available through financial exchanges – 37%.  Out of that base, 31% hold shares with 75% of those investors restricting their investment portfolios to ASX listed shares.

Given the fact the ASX represents a mere 2.5% of the world’s combined share market value and is heavily concentrated amongst the big banks, miners, and Telstra; it is not surprising some financial advisors recommend Aussie investors diversify their portfolios via direct share purchases on international exchanges. Here is a look at the growth of the world’s stock exchanges since 1899.

Trading in international exchanges for Aussie investors is a relatively easy matter of choosing among the online platforms offered by the big four banks or the CommSec Pershing Account.

There are other risks as well, such as currency fluctuations, taxation issues, and the availability of financial information on selected stocks.  The combined impact of significantly higher trading fees and taxation call to mind the sound advice many financial advisers point out regarding the long-term impact of fees on investing returns.  

Much of that advice relates not to individual stock picking, but to investing in mutual or exchange trading funds. The following chart is one of many examples illustrating the principle.

With individual stock picking brokerage commissions are charged at both ends of the transaction and often vary depending on the size of the transaction and the total dollar value of the account.  But the underlying principle of all market investing remains the same:

• The return you get from any stock investment will be reduced by what you pay in commissions and fees, and any tax you pay on the money you make.

Drug manufacturer Mayne Pharma Limited (MYX) got a big boost in its stock price upon announcing its acquisition of 42 generic drug products from Israeli-based Teva Pharmaceutical Industries Limited and US-based Allergan Pharmaceutical. That June acquisition was followed in mid-August with yet another significant acquisition from UK- based GlaxoSmithKline.

Investors enthralled at the prospect of inroads in the huge US generic drug market were emboldened by the company’s Full Year 2016 results, announced in late August.  Revenues were up 89% and net profit soared with a 379% increase.

Enthusiasm began to evaporate as first Mayne got caught up in a price-fixing investigation in the US generic drug market and then the election of Donald Trump raised additional concerns about regulatory changes in the US pharmaceutical market.  Trump was famously quoted as saying “the pharmaceutical companies are getting away with murder.”

In early December, the company was formally named in a US lawsuit, accelerating the share price collapse dramatically. Here is the price movement chart for MYX, year over year.

Mayne ranks number seven on the Top Ten ASX Short List with 12.7% short interest.  Earlier in May the company downgraded its sales guidance, citing a “tougher generics pricing environment in 2H 17”.  Despite all this, analysts still have a solid two-year earnings growth forecast for the company, ostensibly in the belief the growth in the generic drug market could offset price declines.

James Hardie Industries (JHX) is a global leader in commercial and residential building products, specialising in fiber-cement products.  The company’s research and development efforts spur innovations such as its long-lasting siding, developed via ColorPlus® Technology.  Hardie was devastated by the collapse of the US housing market but has seen its share price easily eclipse pre-GFC levels. Here is the price movement chart over the last decade.

On 18 May the company released its Full Year 2017 Results, showing an 11% revenue increase coupled with a 13% rise in net profit.  However, the company’s stated expectation of “modest market growth” in the US reinforced analyst concerns of a possible slowdown in the US housing market.  However, the consensus analyst recommendation for JHX remains at OUTPERFORM.

In June of 2014 Australia’s shopping centre operator Westfield Group spun off its international holdings into the Westfield Corporation (WFD), which currently holds about 35 centres across the US and Europe. Australian assets are now under the umbrella of the Scentre Group (SCG).

Analysts have long pointed to the overexpansion of shopping malls in the US market and the changing face of retailing around the world is crippling US malls.  Major US retailers are shuttering stores by the hundreds, stripping many US malls of critical tenants.  The following chart illustrates the problem.

Given the bleak outlook, why would anyone but the maddest of mad punters consider investing in Westfield?

The company is adapting its business model in the face of the rapidly changing retail environment, focusing almost exclusively on “flagship” centres in “fashion, financial, and technology” capitals across the world, such as London, New York, Los Angeles, San Francisco, and Milan, shedding its regional centres. When the company’s transitional asset development program is complete, the total value of Westfield’s portfolio will be 90% based in 19 flagship assets.

US based consulting firm McKinsey & Company sees a future for malls that evolve their consumer offerings from shopping to include entertainment events, spas and fitness centres, and even farmer’s markets.

In October of 2016 four people were killed in an accident on a ride in the Gold Coast amusement park owned by Ardent Leisure Limited (AAD), Dreamworld.  The share price decline was predictable as was declining attendance at the park, with revenues declining 63% in December and 50.4% in January following the closure of the park immediately after the accident.  February’s 35% drop was an improvement but the share price continued its downward movement until the March announcement that attendance was showing “steady improvement.”  That coupled with takeover speculation and management attempts to refocus Dreamworld for alternative uses and the company’s business model have led to an increasing share price.  Here is a three-month price movement chart the embattled company.

The company has other leisure assets here in Australia including Kingpin Bowling Centres and White Water World, but it is the Main Event centres in the US that are considered the “crown jewel” of Ardent. 

The US business is important enough to have Ardent change its name to Main Event Entertainment Group and shift its focus towards becoming a “pure-play global entertainment group.” The strategic review of company operations is being conducted in conjunction with international management consulting firm L.E.K. 

ResMed Inc (RMD) is a US-based healthcare company specialising in medical devices for the treatment of respiratory disorders, most notably sleep disordered breathing (SDB). 

With relatively few drops along the way, the share price of this company has maintained a long-term steady upward trend for the last decade, rewarding its shareholders with a 14.1% annual rate of total shareholder return (stock price appreciation plus dividends) over that period. ResMed is one of the top healthcare stocks on the ASX, behind leaders CSL Limited (CSL) and Ramsay Healthcare (RHC) but besting fellow device manufacturer Cochlear Limited (COH). Here is the chart.

The company began in 1989 with a device for treating obstructive sleep apnea (OSA).  The original device was created here at the University of Sydney and the search to commercialise the device followed a winding path through Baxter Laboratories and culminating with the birth of ResMed.  

The company has evolved to include a broad range of products, some backed by cloud-based software sold as a service (SAAS).  To stay competitive ResMed remains focused on innovative technology solutions incorporated in its offerings.  An example is the S9™ sleep therapy device which uses an “Easy-Breathe” Motor that mimics human breathing. 

 

ResMed breathing devices range from a variety of simple, lightweight sleep masks and dental devices to small CPAP (Continuous Positive Airway Pressure devices to series of devices with multiple innovate features, allowing for premium performance and pricing.  

The company’s most innovative product may be the S+, a revolutionary system that allows sleep monitoring without any wearable appliance.  The S+ system uses a bedside monitor with web and smartphone apps to monitor sleeping patterns.

The company is still led by one of its founders and has grown both revenue and profit over the last three years.  Average earnings growth over ten years stands at 17.4% and over five years 19.7%.

While economic indicators in the US remain on track for modest growth, the “Trump Trade” has inflated market valuations to troubling levels, in the opinion of some experts.  Predictions for market corrections are more of a concern for short-term investors.  Those willing to stay in the game long-term may wish to listen to the advice of many experts who state over time stock investing wins out.  When it comes to stock investing, US markets best the ASX consistently.  The Dow Jones Industrial Average (DJIA) is the US index that gets the most popular coverage, but experts look not to the Dow but to the S&P 500 index.  The following graph compares the performance of the S&P 500 to the ASX 200 over the last twenty years.