A Global Portfolio

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Today, instead of grabbing the Wall Street Journal, I read the Investor’s Business Daily.  After taking a cursory look through that newspaper, I thought that I would take a stab at creating a "Global Portfolio."

The Global Portfolio that I came up with consists of 5 stocks: a Puerto Rican Bank, a Japanese Automaker, a Korean Chipmaker, a Mortgage Servicing Company in the Cayman Islands, and a Beverage Maker in Mexico – a reasonably diverse group of companies from across the globe. 

A Bank

Popular (NASDAQ: BPOP) is a bank holding company that provides commercial banking services through branches in Puerto Rico, the Caribbean, and the United States mainland. The company also provides mortgage and consumer finance, lease financing, investment banking and broker/dealer activities, retail financial services, and automated tellers.  Popular trades at a P/E of around 12 and at a forward P/E of less than 10.  What’s more, according to MSN Money, this bank trades at a Price to Book Value ratio of 0.71, has grown net income by more than 60% year over year, and has made significant progress in improving its credit quality.  Still, with a return on equity of a little more than 6% and a net profit margin of slightly more than 13%, there is a lot of room for improvement.  So if Popular can improve its return on equity and net profit margin, then this bank can become even more profitable. 

An Automaker

Toyota Motor (NYSE: TM) is the world’s biggest automaker. Toyota designs, manufactures, and distributes sedans, minivans, compact cars, sport-utility vehicles, trucks, vehicle parts, and accessories. Toyota also provides vehicle financing and equipment leasing operations.  Furthermore, Toyota designs, manufactures, and sells residential housing and has an information and telecommunications services business.  Toyota trades at a P/E of more than 46 and at a forward P/E of approximately 14, which reflects its dominant position in the market and potential for profitable growth.  Toyota also pays a small dividend of between 1% – 2%.  But Toyota’s performance has been erratic.  Although Toyota is a bellwether company, its shares are currently priced to perfection.   

A Chipmaker

MagnaChip Semiconductor (NYSE: MX) is a Korean chipmaker that designs, develops, and manufactures analog and mixed-signal semiconductor products for consumer applications.  MagnaChip’s solutions are used in consumer and commercial mass market applications, such as mobile handsets, including camera-equipped mobile handsets, flat panel monitors and televisions, consumer home and mobile displays, portable and desktop computer displays, handheld gaming devices, PDAs, and audio-visual equipment such as DVD players.  MagnaChip trades at a P/E multiple in the mid-4’s and at a forward P/E multiple of around 6, which suggests that analysts expect growth to slow and that the company’s most recent quarterly earnings were a fluke.  That seems reasonable given that this stock delivered earnings per share of $3.50 last quarter – which certainly appears to be an anomaly because it is more than double that of any of the most recent 10 quarters.  All in all, MagnaChip is reasonably valued, highly profitable, and has significant growth potential.  

A Mortgage Servicer

Home Loan Servicing Solutions (NASDAQ: HLSS) is a mortgage servicing company that is targeting the subprime market because the big players have abandoned that market.  Home Loan Servicing Solutions operates through its wholly owned subsidiaries, which acquires mortgage servicing assets consisting of mortgage servicing rights, rights to mortgage servicing rights, associated servicing advances and other related assets.  Home Loan Servicing Solutions trades at a P/E multiple of slightly more than 14 and at a forward P/E multiple of around 13, which suggests that analysts expect a moderate amount of growth.  Furthermore, this company has a dividend yield of approximately 7% and has grown both revenues and earnings at a very high rate.  All factors considered, Home Loan Servicing Solutions offers the potential for a nice return, but that return is not without significant risk.

A Beverage Maker

Fomento Economico (NYSE: FMX) is Latin America's largest beverage maker.  This company bottles, markets, and distributes trademark beverages of Coca-Cola such as Coke, Fanta, Sprite, Powerade, and Delaware Punch.  In addition, Fomento Economico operates convenience stores, holds a 20% stake in the total share capital of the Heineken Group, and recently expanded into the pharmacy business.  Fomento Economico trades at a P/E multiple of more than 200 and a forward P/E multiple of around 25, which suggests that analysts expect this company to grow earnings at a very high – and probably unrealistic - rate.  Overall, although I like this company’s business model, it is currently priced to perfection.      

3 Critical Considerations

  1. Stability.  Many of these companies have performed erratically.       
  2. Macroeconomic Environment.  The performance of these companies is highly correlated with the performance of the global economy (hence the title). 
  3. Entry and Exit.  Finding a good entry point and sell point are critical considerations for these companies given their exposure to global trends.  

My Foolish Take

If you choose to invest in any of these stocks, you have to be prepared to monitor broader economic trends and follow these companies closely.  Of this group of stocks, I feel that Popular, MagnaChip Semiconductor, and Home Loan Servicing Solutions, are worthy of additional analysis and potentially consideration of investment dollars.  By contrast, although I like Toyota’s product and market share leadership as well as Fomento Economico’s business model, I feel that both of these companies are priced to perfection and that there is better value elsewhere.


RyanPeckyno has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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