As the decade long bull market is shocked with a wave of volatility, some investors recommend buying shares of brand-name companies that are positioned to weather the storm in the long term. This year, fears of trade tensions, rising interest rates, populism, diverging monetary policies and overall geopolitical instability have created choppy market conditions, sending a series of shock waves through global markets, as outlined in a recent Barron's story. In an increasingly uncertain and faster-changing environment, familiar names such as Daimler, Bridgestone, Royal Dutch Shell, Baidu, Ping An Insurance, Cosmos Pharmaceutical and BNP Paribas look like safe bets, according to the Barron's cover story.
6 Blue Chips That Can Thrive
|Bridgestone||Tire and rubber|
|Royal Dutch Shell||Energy and petrochemical|
|Ping An Insurance||Financial services|
|BNP Paribas||International banking|
“Investors need to be very picky because different parts of the world face varying degrees of fragility,” said Mohamed El-Erian, chief economic adviser for Allianz, as cited by Barron's. While for years rates were universally low and money flowed into U.S. equities and riskier assets, central banks are beginning to lift interest rates. Meanwhile, the one-time benefit from the Trump tax cuts should wear off, leaving a budget deficit projected to surpass $1 trillion by 2019. (For more, see also: Take Caution With Emerging-Market Stocks: Goldman.)
“Investors need to be very picky because different parts of the world face varying degrees of fragility” says Mohamed El-Erian.
Yet as U.S. corporate earnings remain solid and shares of companies such as the FANG tech giants trade at high multiples, some money managers say they are finding better bargains in beaten down international stocks. Apart from 2008, U.S. stocks are currently the most expensive they have ever been relative to foreign shares.
The MSCI EAFE index trades at 14 times forward earnings, 22% below its 20-year median, while the MSCI Emerging Markets index trades at 11, 15% under its historical median, wrote Barron's. Both indexes are better bargains compared to the S&P 500, which trades at nearly 17 times, right below its historical median.
"If you don’t like the world from a big-picture view, you have to craft a more resilient portfolio. To do that, you have to be global. The U.S. doesn't have a monopoly on resilient companies," said Matthew McLennan, co-manager of the First Eagle Global fund, as cited by Barron's.
Royal Dutch Shell
While trade tensions have weighed on the oil industry, some money managers view Royal Dutch Shell as less vulnerable to volatile oil prices. The world's largest fuel retailer is diversified in markets such as lubricants and liquefied-natural-gas products. Trading at 11.5 times earnings, compared to the S&P 500 at 24.6 times, the stock looks reasonably priced, as noted by Barron's.
Japanese tire maker Bridgestone, while seemingly at risk of rising trade tensions due to its position in the auto industry, should also be shielded from the negative impact of tariffs. This is due to the fact that tire are bulky and typically produced close to where they are sold, according to Benjamin Segal of Neuberger Berman International Equity fund, as cited by Barron's. While the rising popularity of on-demand transportation platforms like Uber and Lyft may pressure car purchases, a steady rise in total miles driven should continue to lift tire sales. Bridgestone, trading at 10 times forward earnings, also looks more attractive after paying down a significant amount of debt and boasts a 9% free cash flow yield, wrote Barron's.
Daimler is another company seen as well positioned in the long-term, despite being punished on the Street for lowering its profit forecast in the short term due to trade wars.
"Daimler isn’t worth 25% less from its recent high because the U.S. puts 25% tariff on imported cars. It’s a global company that makes both trucks and cars and sells all over the world, with China its most profitable market and plenty of local production,” said David Herro of Oakmark International. “There’s no way the math works.”
Ping An Insurance Group, an emerging financial technology leader, is among beaten down Chinese stocks positioned to benefit as more consumers in the country buy financial services products. (For more, see also: How to Profit by Going Contrarian.)