Why I'm Selling U.S. Retailers and Buying Asiahttp://www.fool.com/investing/international/2009/09/30/why-im-selling-us-retailers-and-buying-asia.aspx Nathan Parmelee
September 30, 2009
Master international investor Sir John Templeton famously quipped, "See the investment world as an ocean and buy where you get the most value for your money."
With the S&P 500 up nearly 60% from its low and large caps like Starbucks (Nasdaq: SBUX ) doubling in less than six months, there's not as much value around the U.S. markets these days. Now is a time when it helps to have a global view and look outside the country for better bargains.
The retail industry is a great example. U.S. retailers were cheap earlier this year, but now they more than price in economic recovery. Retailers in Asia, which have better growth prospects and are what I'm looking to add to my portfolio, are actually cheaper. Below is a comparison that highlights what I am seeing.
Data provided by Capital IQ, a division of S&P.
American Eagle shares have more than doubled from their March low, and for the current valuation to make sense, margins have to recover quickly. I'm skeptical that can happen, but American Eagle is hardly alone; Abercrombie & Fitch (NYSE: ANF ) has more than doubled from its lows, too. Surprisingly, American Eagle and Abercrombie & Fitch shares have made their climb despite falling same-store sales and the bleak outlook for consumer spending -- two headwinds that work against margin expansion.
The comparison company, Ryohin Keikaku, is best known for its Muji line of stores in Japan. It trades under the number 7453 on the Tokyo stock exchange and also has a low-volume pink sheet listing under the ticker RYKKF.PK. Muji's full name translates to "quality, non-brand goods," and that's exactly what the company sells. Everything from apparel to stationery to food is contracted out to manufacturers, wrapped in the same no-frills packaging, and sold in its stores at affordable prices.
Why U.S. retail doesn't deserve a premium valuation