The sell-off in foreign markets is drawing bargain-hunters, but caution is warranted given the risks posed by the rise of populism, an escalation in trade tensions and diverging monetary policy after years of major central banks keeping interest rates low.
In this week’s cover story I laid out how investors are navigating these risks and found 10 stocks money managers were buying for the changing world order. Here are five more stocks fund managers think already reflect the risks ahead, are more insulated from them — or both.
Bridgestone Corp. (5108.Japan) is a Japanese tire maker, which suggests it is in the crosshairs of trade tensions as talk of auto tariffs go back and forth. But tires are bulky and typically produced near where they are sold, which means Bridgestone shouldn’t see much direct hit from trade, says Benjamin Segal, manager of the Neuberger Berman International Equity fund (NIOAX).
While car purchases may be under pressure in the age of Uber, Segal says miles driven—the key metric for tire sales—should continue to rise. Plus, Bridgestone has paid down debt significantly and now generates an attractive 9% free cash flow yield yet trades at just 10 times forward earnings.
BNP Paribas (BNP.FRANCE)
Though many managers are staying clear of Italian stocks ahead of the new government putting forth a budget this fall, veteran value manager David Herro, of Oakmark International (OAKIX) likes the French bank, which owns Italian Banca Nazionale del Lavoro
The French bank’s earnings have been hit by lackluster trading in Europe, but Herro says BNP Paribas is well-run, with its stock penalized in part for its ownership of the Italian bank. Herro estimates the Italian operation accounts for just 20% of BNP’s business and says the stock should be trading close to 1.25 times book price, versus its currency 0.7 times.
Brazil’s economic recovery has been slow to emerge from a deep recession, with uncertainty over who will win October’s presidential election not helping much. But that’s created some opportunities in companies that should do well regardless of the geopolitical situation, like Linx, a software company that helps retailers better manage inventory.
Sales are increasing at a double-digit pace as retailers try to become more efficient in the face of e-commerce—a trend unlikely to be changed by macro or political economic forces, says Hyung Kim, manager of the Virtus KAR Emerging Markets Small-Cap fund (VAESX), which is beating 99% of peers in Morningstar’s emerging markets category this year.
Dabur India Limited (500096.India)
The consumer has always been an attractive area for investors in India—even more so now as India is less exposed to trade tensions than other emerging market countries and the economy is recovering after a rocky three-year period and two dry seasons that hit rural consumers hard.
Consumer-goods purveyor Dabur India, which gets about half its sales of items ranging from hair oil to boxed sweet lime juice to rural customers, should benefit. At 45 times next year’s earnings, it certainly doesn’t look like a bargain But Rondure New World (RNWOX) manager Laura Geritz says it looks pricey on depressed earnings. The company’s earnings should have the “first decent accelerating earnings year” in four years.
Bharti Infratel (535816.India)
A cheaper option in India that also is insulated from geopolitical risks is Bharti Infratel. The company has dominant market share in the tower business, positioning it to benefit as smartphone penetration and data consumption continues to rise. The mobile industry has been in the midst of consolidation, slowing the roll out of new towers and hitting the stock, which is down 23% this year. Artisan Global Value (ARTGX) manager Daniel O’Keefe expects growth to resume since data demand continues to grow, creating an opportunity to buy the stock on the cheap. The stock trades at 21 times forward earnings, below its five-year average of 24 times. In the meantime, it pays a dividend yield of 4.8%.
Write to Reshma Kapadia at firstname.lastname@example.org