We used the moat rating as a starting point to compile a list of the best companies you can own. As the best companies in our coverage universe, they have wide economic moats, the strength of their competitive advantages is either steady or increasing, they have predictable cash flows, and they allocate their capital effectively.
Consumer defensive and healthcare are the most represented sectors on this list, with six companies each. Industrials is close behind with five companies, and the technology, financial services, and consumer cyclical sectors each have one.
Here are the 24 companies based outside of the United States, but available to U.S. investors, that made the cut.
The one thing not addressed in building the list is how compelling the investment prospect is at current prices.
On that front, it’s remarkable what a wide range there seems to be among that group.
As for why it’s so limited and skewed, a lot of world stocks aren’t available to US investors.
At a glance, it seems they perhaps also eliminated OTC non-US stocks, some of which are extremely liquid.
That “provincial” scope narrows the field quite a bit.
“The one thing not addressed in building the list is how compelling the investment prospect is at current prices.”
I noticed that, too. They’re focusing predictability, which is extremely important, but there’s no mention of profitability, revenue growth or IV growth. The companies look like good ones to put into a watchlist, though, as Morningstar suggests. Morningstar does not include IV growth in its stock screens or watchlists, but IV growth can be seen for each company individually in the “price and fair value” chart. If trailing 5-year fair value growth is any indication of future fair value growth, then the companies on the list have a broad range of investment prospect. For example the trailing, estimated, fair value growth for GOOG is 33%/year, while the trailing, estimated, fair value growth for BUD is -6%/year.
Not impressed. BUD and ABEV are poorly run - look at the past returns.
I’d rather just buy IXUS/VXUS (or if you want to avoid emerging markets altogether, then VEA/SCHF/SPDW/IDEV/…) These ETFs are well-diversified - no stock above ~1% weight, unlike in US indices. Decent dividend yield too, comparable to the M* 24-stock-basket.
If you like a well diversified foreign ETF…check out iShares MSCI Emerging Markets Small-Cap ETF (EEMS)
1,397 companies and the largest holding is only 0.45%. Unlike most Emerging Market ETFs, China exposure is only 8.5%. The big ones are Taiwan (22.5%), India (21.2%), South korea (14.7%).
Selling for a PE of 14.7 and a P/B of 1.6.
However, be aware that the expense ratio is on the high end at 0.68%.
If you like a well diversified foreign ETF…check out iShares MSCI Emerging Markets Small-Cap ETF (EEMS)
Will do.
I have a question about small-cap ETFs in general.
What happens when a company becomes successful and grows out of the market cap ceiling for the ETF? I assume they are forced to sell it. So eventually only the losers remain. Is that correct?
EEMS looks surprisingly OK despite the 0.68% ER. 15 P/E, 12% historical earnings growth, 1.5-1.6 P/B, 3.7% dividend. I checked the iShares and Fidelity sites they mostly agree. Surprising that India looms so large (23%), including old British-era Indian companies like Crompton Greaves. Growing up in a socialist, no-competition license-raj India, those were the only fans (ceiling fans, not the YouTube variety) around before Bajaj came along. Despite being an Indian American I have no particular affinity (unlike Prem Watsa) to invest in India, which is a tough and opaque market. Still, I’d rather invest in these old timers than Adani’s or Ambani’s companies.