Global economic growth is surging, and many analysts contend that global equity markets are in for a strong 2018. For investors wanting to participate in the continuing bull market, overseas stocks are generally offering a better value than their U.S. counterparts, and might represent a good alternative if economic growth continues.
Factories across the globe are running near full capacity—Chinese industrial utilization rates reached 78% in the fourth quarter of 2017, the highest level since 2011. And, if commodity prices continue to rise, exporters facing excess capacity and manpower (as a result of substantial investments made during the last boom coupled with output constraints imposed by OPEC), more capacity should get utilized.
Strong GDP growth is expected to continue in both China and Europe, and the European Central Bank (ECB) will most likely maintain the current level of monetary stimulus until late in 2018. Relatively inexpensive raw materials coupled with busy factories could mean opportunity for investors in the global manufacturing and industrial asset classes, particularly in the lower-priced emerging markets.
In its 2018 Global Investment Outlook, Blackrock Investment Institute says that the current synchronized global expansion has "room to run" in 2018 and beyond, adding that the eurozone is enjoying its fastest economic expansion since 2011 and that the "breadth of the global recovery has expanded: Manufacturing figures are up in about 80% of countries, a share that has steadily increased over the past year."
At Validea, we use stock screening models that we created based on the investment methodologies of industry greats such as Peter Lynch and James O'Shaughnessy. Here are five global industrial/manufacturing names that score highly according to these models:
Ingersoll-Rand PLC (IR) provides products, services and solutions to improve the quality and comfort of air in homes and buildings, transport and protect food and perishables. According to our Peter Lynch-inspired investment model, the company is classified as a "fast grower," and earns high marks based on its favorable ratio of price-earnings to growth in earnings-per-share of 0.52 (the PEG ratio, a hallmark of the Lynch strategy). For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. IR's P/E of 23.47 easily passes this test.
United Technologies Corporation (UTX) is engaged in providing high technology products and services to the building systems and aerospace industries around the world. The company earns high marks from our James O'Shaughnessy-inspired screening model in light of its size (market capitalization of $110 billion) and cash flow per share of $8.84 versus the required level of $1.77. This strategy also looks for companies whose total number of outstanding shares are in excess of the market average, and UTX passes this test with 798 million shares outstanding (versus the market average of 598 million).
Stanley Black & Decker, Inc. (SWK) is a global provider of hand tools, power, automatic doors and commercial locking systems, electronic security and monitoring systems, healthcare solutions, engineered fastening systems, and products and services for various industrial applications. The company gets a thumb's up from our Lynch-based model due to its P/E ratio of 21.09 (well below the maximum level of 40 allowed for companies with sales of over $1 billion). A decrease in the percentage of inventory to sales over the past year adds appeal.
Siemens AG (OTCPK:SIEGY) is a Germany-based technology company with activities in the fields of electrification, automation and digitalization. It is also a supplier of systems for power generation and transmission, as well as medical diagnosis. The company earns a perfect score according to our O'Shaughnessy-inspired stock screening model due to its size (market cap of $127 billion) and persistent growth in earnings-per-share over the past five years. The price-sales ratio of 1.24 (based on trailing 12-month sales) is well below the maximum allowed of 1.5, and the stock's relative strength of 61 places it in the top 50 among shares that pass this screen, as required.
Daimler AG (OTCPK:DDAIF) is an automotive engineering company. The Company is engaged in the development, production and distribution of cars, trucks and vans in Germany, including Mercedes-Benz. This company also earns a perfect score from our O'Shaughnessy-inspired model given its favorable price-sales ratio of 0.49, relative strength of 64, and persistent growth in earnings-per-share over the past five years.
Disclosure: I am/we are long SIEGY, DDAIF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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