One of the largest positions in the First Eagle Overseas Fund, France-based Danone SA, is a world leader in yogurt and bottled water. Its price-earnings ratio is in the teens, while many food companies in slower growth categories trade at 20 times earnings, he says. Danone’s 3% dividend yield is reasonable, he says, and can grow as the business grows organically.
Emerging markets have struggled in recent years. However, Centerstone Investors’ chief investment officer Abhay Deshpande believes it is a huge mistake to lump the entire universe into a single basket.
The downturn in many emerging markets provides an attractive entry point to buy quality companies, in his view. Between March and June, Indocement, a leading Indonesian cement manufacturer, saw its stock drop nearly 45%. “Virtually nothing had changed; the business is doing fine,” Deshpande says. A competitor is being auctioned in Indonesia and the “prices being discussed would indicate [Indocement] is very cheap.”
Another company that Centerstone favors in the developed world is ICA Sweden, a grocery store chain operating on a franchise model. It trades at 15 times earnings and has a market share of between 40% and 50%, Deshpande says. In contrast, Walmart’s market share of grocery sales in America is about 25%.
Merlin Entertainments, the world’s second-largest theme park operator, also is in Centerstone’s portfolio. At present, it is building a theme park in Japan and another in upstate New York, depressing margins. In early October, the stock was down 25% from its peak. That suits Deshpande just fine. “I’d rather they continue to build more theme parks,” he says.
More Globe-Trotting For Value
Bill Kornitzer, co-manager of the Buffalo International Fund, which invests in growth and value stocks and is part of a family of funds advised by Kornitzer Capital Management in Mission, Kan., says it’s a good time to consider the relatively cheaper valuations in international stocks and the accommodative credit cycle in global markets. But he warns against flocking to low price-earnings ratios without considering the risks.
“If we’re 80% through the economic cycle—which is probably as good a guess as anybody will give you out there—then this isn’t the time that you buy those [discounted] heavily cyclical industries,” he says. “The reality is these multiples and these earnings can crater by two-thirds from where we are right now.”
Among his value-oriented positions are Brenntag AG and Fresenius SE & Co., both based in Germany. Brenntag, a global leader in chemical distribution, is consolidating the very fragmented distribution market, it’s relatively cheap, and the companies it buys will be more attractively valued if a recession begins, he says. Fresenius, a leader in dialysis products and services, is relatively immune from the overall economic cycle, he says.
Low turnover is a common theme among the quintet of managers interviewed here. For example, when Kornitzer initially invests in a security, he expects to hold it for five-plus years. Many people want to move their money around and “dance across the water on the tips of the alligators’ snouts,” he says, “but we really take a very measured approach here and think about the long term.”