Ariel Investments' Rupal Bhansali: 2015 stock picks
RUPAL BHANSALI
CHIEF INVESTMENT OFFICER OF INTERNATIONAL EQUITIES, ARIEL INVESTMENTS
2015 STOCK MARKET OUTLOOK:
Investors looking for money-making ideas outside the USA should be able to unearth some good opportunities abroad in 2015 despite economic challenges and risks in big markets such as China and the Eurozone, says Rupal Bhansali, chief investment officer of international equities at Ariel Investments.
"There is opportunity in all parts of the world," says Bhansali, who manages Ariel's International Fund and its Global Fund, adding that investors will need to "pick their spots" and zero in on foreign stocks and sectors that are cheap relative to their U.S. peers.
Investors will closely watch to see whether the stimulus efforts by the European Central Bank will be able to fend off the "threat of deflation" in the Eurozone, she says. If the ECB fails, "that can certainly derail stock markets worldwide, as it will raise the specter of sovereign risk all over again," Bhansali warns. Wall Street will also be monitoring Japan, which is back in recession, to see if the Bank of Japan's efforts to revive the Japanese economy are successful.
One investment strategy she advises is buying foreign stocks that offer better value than similar U.S. companies. Japan's Toyota, for example, sells at lower valuations than many U.S. automakers. Similarly, she likes shares of Deutsche Bourse, a German stock exchange, as it is selling at a "significant discount" to the U.S.-based Chicago Mercantile Exchange, or CME Group. She also prefers China's Internet-search play Baidu over U.S. search giant Google.
But be careful in emerging markets, she warns, where a continued slowdown in China could hinder companies exposed to the world's second-biggest economy.
BIGGEST RISK:
In one word: China. A sharp economic downturn or bursting of its overheated and highly leveraged real estate market could cause turbulence because "a lot of sectors and companies have benefited from China's rapid growth" over the past 15 years. "China still remains the big swing factor in terms of the outlook for global GDP growth and risk," Bhansali says.
TOP STOCK PICKS
GlaxoSmithKline (symbol: GSK, Thursday's close: $43.35). The U.K.-based drugmaker, despite recent headwinds from disappointing new drug launches and generic threat to its leading asthma drug Advair, is well-positioned to profit from rising cases of respiratory diseases worldwide. Profit growth is likely to return in 2016, but its 6% dividend yield and cheap P-E of 13 presents value.
Deutsche Boerse (DBOEY, $7.20). The German stock exchange sells at a "significant discount" to the U.S.-based Chicago Mercantile Exchange. The financial services play benefits from new rules that require derivatives trades to be cleared through exchanges, not banks. Its P-E of 15 is more attractive then the CME's 20-plus multiple.
Microsoft (MSFT, $47.17). The "old tech" name, which once traded at 50 times earnings during the 2000 Nasdaq bubble, sports a below-market multiple of 13 times earnings. It has $100 billion on its balance sheet, so the software and computer enterprise play will continue to boost shareholder value via dividend payouts and stock buybacks. The "mispriced" stock can succeed in an Apple-dominated world.
China Mobile (CHL, $58.40). The wireless smartphone revolution has not bypassed China. Although China's stock market may be risky, China Mobile and its world-best 700 million-plus subscriber base will benefit from a higher adoption rate of mobile phones running on a new network. The addition of the iPhone to its lineup and 3.5% dividend yield and cheap P-E make it a good call.
Tumi (TUMI, $22.85). The small-cap name leads in business traveler garment bags, totes and briefcases. The company, which went public two years ago, is "flying under the radar" despite the fact it's in the "early beginnings of a success story" that could transform it into a growth stock with staying power. A move into the female market and expansion opportunities in the USA and abroad boost its growth profile.
Disclosures: Bhansali owns GSK, DBOEY, MSFT, CHL and TUMI in her personal account and through the funds she manages, Ariel International Fund and Ariel Global Fund.
FAVORITE SECTOR:
Health care in Europe. She sees great opportunity — and value — in Europe's health care space, which has lagged the solid performance in the USA. "Health care," she says, "is the new consumer staples. Whether it is biotech or traditional pharma, in an aging society the demand for health care is going to be astronomically higher compared to the past."
INVESTMENT THEMES WORTH BETTING ON:
• Employ growth — and income — strategy. While interest rates in the USA and around the globe are still low, seek out stocks with both capital appreciation potential and dividend yields of 3% or more. That will fetch better income than, say, the yield on the 10-year U.S. Treasury, which closed south of 2.2% Thursday. "You can get the best of both worlds — growth and income — in stock markets around the world," she says.
• Buy tomorrow's blue chips. Avoid "market favorites." Your goal, instead, is to "buy the blue chips of tomorrow, not yesterday," she says. "If you missed out on big, winning growth stocks like Starbucks back in its heyday, find new companies like travel luggage maker Tumi that could morph into a Starbucks-like growth stock success story."
