Europe - opportunity amid the anxiety

"You don't get rich buying expensive stocks."

Returning from a European research trip, Paul Moore gives a deeper dive into:

  • why his analysis is indicating the European business environment is stronger than many think
  • the progress and stability of the European banking sector in a period of unprecedentedly low interest rates
  • why builders remain very cheap despite short term concerns in the form of Brexit and trade tensions
  • new sectors and stocks he is looking at, including telecommunications equipment providers, litigation funders and online/ sports betting companies

Highlights:

0.29: “Post GFC, in countries like Spain, Ireland, Portugal, the imbalances have been addressed, and they've actually got a good base from which to grow from here.”

4.56: “The Irish home builders are very interesting at the moment...if you look at the US, typically home builders would sell at a 10 to 12 P/E under normal conditions. The Irish home builders are on six times now.”

10.27: “If you look at Spain, the home builders there...prices are more elevated so they're not as deeply discounted...but the underlying demand is still well ahead of supply. And again they are trading on single digit P/Es."

12.00: “So the real issue with the European banks at the moment, which is probably the cheapest industry sector I can find in the market today, is the debate around the level of earnings and whether the market is over-estimating the negative impact that QE will have on interest rates….”

13.40: “The reason we're interested potentially in some of the copper companies [is because commodities companies] on a relative basis have not been cheaper since the Great Depression back in 1929. Whenever we get valuations in the lower quartile of its historic range, we get interested.”

16.00: “You might be familiar with Nokia... It used to be a mobile phone manufacturer… Spending's been subdued. So earnings have been tough. But we are entering a new deployment of technology…”

16.45: “We also saw a company that's involved in litigation finance - Burford Capital.”

17.10: “We also saw a couple of online and sports betting companies, GVC and Stars Bidding. Both these companies have been built up by acquisition over recent time.”

21.30: “[There are some] really interesting opportunities on the radar screen, which sounds strange because the market is at an all time high. It highlights that the market is split between sectors of the market where there are record high valuations, and sectors of the market that are at record low valuations. High valuations will deflate and the low valuations will reflate.... creating a really exciting opportunity for investors because there's certain sectors of the market that can provide some excellent risk reward adjusted returns. Now there's a big IF, and that big IF is those opportunities will only be afforded to you if you can dare to be different. We’re at a big inflection point in markets and you really have to think hard about…if you've been caught up in the crowd or whether in fact you're investing where the best risk reward opportunity is now. Remember that to be a successful investor, you have to be different. So are you different or are you just joining in with the latest trend? My guess is that industry norms are going to be proved to be very costly over the next 10 years. You don't get rich by buying expensive stocks.”

Would you like more insights? Subscribe below!

More on the Global Companies Fund

More on the ASX-traded Global Opportunities Fund

This article reflects opinions as at the time of writing and may change. PM Capital may now or in the future deal in any security mentioned. It is not investment advice.