FYI | Feb 03 2016
By Peter Switzer, Switzer Super Report
I often get asked the question: what foreign stocks should I invest in? And as I was tipping the Oz dollar was going to fall for over a year, those who have already got into overseas shares have gained, even if you take into account recent falls on global stock markets.
As a financial planner, I know the benefits of having a diversified exposure to both local and foreign stock markets. However, as a financial commentator I know great foreign stock picking can be brought undone by the currency.
When the Nasdaq was obliterated after the dotcom bust, I eventually weighed into an ETF that tracked the Nasdaq. Like clockwork, after the bottom was hit, there was eventually a good comeback. However, that damn Aussie dollar inexplicably tracked the damn Nasdaq — I regularly said: “Damn it”, after my astute index play was offset by lack of foresight around the link between a hi-tech stock market index and a commodity-based currency! To this day, I know there is no link but that’s playing stocks for you.
Deep down, I distrust the Oz dollar and, right now, I have my doubts. AMP Capital’s Shane Oliver thinks the dollar could fall to 60 US cents, which would be a potential 14% gain if that happened and your foreign stock share price stayed still. However, what if our dollar rises to 75 US cents? Then your stock has to go up 7.1% to offset that rise.
If commodities actually start to recover this year, our currency could go up. You need to factor that in when you do your pros and cons of investing abroad.
That’s my warning! Now comes my inside information from a very successful foreign fund manager, who I dined with in early December in London.
He maintains that there are four foreign companies that will dominate their industries and wherever they play, whoever is not the biggest will get drilled. The four companies go under the acronym of FANG!
F stands for Facebook, which reported brilliantly last week. A is for Amazon, which my fund manager mate says has total retail domination in its sights. N stands for Netflix, which has taken Australia by storm and has the rest of the world ahead of it. Then there’s G for the website address most of us go to daily — Google.
When I first advanced this theory with Paul Rickard, he wisely pointed to Apple and how it had dominated and then recently has gone off the boil. This chart shows Paul’s argument:
Apple has had to endure the loss of Steve Jobs and the increased competition from Samsung Galaxy. While it is market leader, with lots of ground made up in China, it doesn’t dominate like the FANG team.
The Facebook chart shows you how out of touch the market is, with the success of this company with the spike it enjoyed last week, underlining how spot on my fund manager mate was.
Amazon has copped it lately but its share price movement is similar to the charts above. Have a look here:
Some commentators think it could go lower after increasing its record revenue but the company reported $1 per share when analysts had expected the company to exceed $1.50 per share. But my fund manager mate thinks this company is into competition extermination rather than profit making in the short-term.
Amazon amazes me. Anyone needing to be impressed should read the article Is Logistics About To Get Amazon’ed. My fund manager mate explained how, in the UK, people buy their fridges from Amazon, so it looks like Australia is yet to be fully Amazon’ed!
And what about Google, or Alphabet, as it’s now called on US stock markets? Well, the chart looks very much like the other three and when you think about this company, it is, like the others, changing the world, as we know it. Need proof? Think driverless cars and drones. Unfortunately, nearly every smart tech-guy I know says they’re all coming and they’ll be huge! This is what Richard Nieva of cnet.co says: “Google is one of the most ambitious companies in the world. The tech it puts its brainpower behind can change industries, as was the case when Google announced it was working on self-driving cars in 2010. Automakers in Detroit initially scoffed. Now every major car company has an autonomous-driving initiative. That's what Google does to complacent industries: It charges at them, even if quietly, with a hockey stick.”
These companies remind me of companies such as Ramsay Health Care – you never want to buy them because their P/Es are off the planet and you think you’ve missed the boat but their ships are always coming in with better returns.
These are the companies of the future but they’re killing it now in terms of revenue. And they’re killing their competition along the way.
I like the idea of an equal weighting with these companies and I wished I’d dined with my fund manager mate say two years ago, when the share prices were lower and the dollar was higher. However, I think these are keepers and worth buying when there are dips and even crashes!
With FANG, you are sinking your teeth into exceptional companies.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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