Sectors and Stocks Benefiting From Global Deleveraging
While consumers in the West are trading down, those in emerging markets are trading up. Trusted Western brands from Unilever, Tesco, and Molson are poised to benefit.
With your steady compound interest then -- you know; the eighth wonder of the world according to Einstein, or whatever -- you really focus on making sure you protect against permanent capital loss.
Now and again, in all auction markets, there is going to be volatility. The average New York Stock Exchange stock fluctuates 50%. But you're looking at permanent capital loss through changing technology and things -- bad acquisitions, performance, bad allocation by management, etc. -- you're always on the lookout for those things that can torpedo your portfolio. That's why if you can avoid the torpedoes and the bubbles, you will outperform over the long haul.
Gregg Early: Are there a couple of stocks that you like right now? I know that even in, say, the consumer staples sector, some of these might be overvalued at this point. What are you looking at now that is attracting you?
Jeff Auxier: Well, unfortunately now you've got to buy some problems because the markets have moved up. But we like Tesco (TESO); we'd buy at lower prices, but Tesco is very much levered into that emerging middle class, primarily on the supermarket side, in Korea and Asia. They're also big in the UK.
[It has] a 4.5% dividend yield; nine times earnings, and it stumbled badly in the first quarter. But again, we're looking at those franchises that typically will stumble.
Tesco overextended similar to what McDonald's (MCD) did in 2002, and then a couple years ago Starbucks (SBUX) as well...too many stores, and they lost focus on their customers. Now they are getting back, so their retrenchment has been a good time to accumulate the stocks.
Like I say, a lot of things have moved up, so we're very price sensitive. But we've got a fair amount of things like Molson Coors (TAP). Molson has been around since the 1700s; the oldest brewer in North America. We first got in in the low $40s, high $30s; 10 to 11 times earnings. And again, the Coors management has been very innovative and coming out with a lot of new craft brews and stuff like that.
We look at ticket sizes -- again, in a harsh deleveraging, you're in demand. We don't want to be in windmills or solar or something that is dependent on tax credits. We want products where people buy them because they want to buy them. They're not forced to buy them, and they're not buying it because there is a subsidy -- a housing subsidy or interest-rate subsidy.
Gregg Early: And they don't have to get approval-loan approval-right?
Jeff Auxier: Right. We want to just...people want to buy products that, they really want to buy them; they're affordable. Kind of like affordable luxury.
We talked about Ben and Jerry's Ice Cream. Something that they can buy, maybe a cup of coffee -- a nice cup of coffee. They're not going to buy a Maserati or something stupid.
They'll do that over -- and you add it up -- on people who are aspiring to buy Western products. And if you've got a trusted brand, you've got to have the scale to serve -- in this urbanization, there are a lot of people [who] are moving into these urban areas, and you've got to have the distribution. So that's what's been exciting.
Editor's Note: This article was written by Gregg Early of MoneyShow.
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