Enterprising investors will seek out good stock ideas wherever they are, not least because you can sometimes pick up stocks at reasonable valuations with exposure to investment themes that are working on a global basis. That's the case behind buying stock in France's industrial software company Dassault Systemes (DASTY 0.52%), U.K. precision measurement solution company Spectris (SXS 0.61%), and U.K. luxury goods house Burberry Group (BURBY 1.31%). Let's see why each stock is worth considering right now.
Dassault: A leader in a hot industry
Dassault Systemes is the world's leading computer-aided design (CAD) software provider and the third-largest player in the product lifecycle management (PLM) software market. I've previously touched on how attractive these end markets are in the context of discussing one of Dassault's U.S. competitors, PTC, a highly attractive stock in its own right.
Interestingly, Dassault trades at a current enterprise value (market cap plus net debt), or EV, to earnings before interest, taxation, depreciation, and amortization (EBITDA) valuation of nearly 30. For reference, PTC is the leading PLM player, and Autodesk is the third-largest CAD player.
Data by YCharts
In a nutshell, the prospects for CAD and PLM providers are significantly enhanced by the explosion of digital technology in design and manufacturing. For example, instead of engineers working on CAD/PLM solutions in isolation, they can now collaborate in an ongoing iterative process involving using vast amounts of data created by CAD/PLM software.
Dassault's 3DExperience platform lies at the heart of this trend and creates a unified environment that can dramatically improve the design and manufacture of products. It's a hot trend in manufacturing, and Dassault is one of the best ways to play it.
Image source: Getty Images.
Spectris: Plenty of long-term growth to come
Spectris offers high-precision testing and measurement systems. Its core geographical end market is Europe, representing 41% of revenue in 2022, but the bulk of its sales (56%) is split equally between Asia and the Americas. Its product revenue consists of sensors (53%), data acquisition (24%), and software (15%), with the remainder coming from virtual testing.
Key industry end markets include automotive, automated manufacturing, aerospace and defense, and electronics. It's an international player with a mix of industry exposures.
If you doubt the attractiveness of the test and measurement and data acquisition markets, consider the hefty premium Emerson Electric ended up paying for National Instruments. It's an attractive market because Spectris' solutions help accelerate product development times while helping meet quality and regulatory requirements. In addition, they help manufacturing processes.
They are also attractive because technological developments are enhancing the efficacy of the industry's solutions. For example, Spectris' management has identified four key trends it can take advantage of now:
- Virtual testing: more virtual innovation in product development
- Digitization: more data and testing to improve efficiency
- Electrification: leading to investment in areas like electric vehicles (EVs)
- Automation: creating the need for automated test and measurement
Digging into valuation matters, Spectris trades at slightly less than 20 times estimated 2023 earnings and at a similar price-to-free-cash-flow multiple. That's a reasonable valuation for a company with excellent long-term growth prospects.
Burberry: Aiming for a turnaround
Burberry is a well-known luxury goods maker, and its stock currently trades on a reasonable valuation relative to such French peers as LVMH Moet Hennessy Louis Vuitton and Hermes International.
The valuation discount reflects the fact that Burberry is attempting to elevate its brand after, arguably, allowing it to be lowered by licensing deals and allowing distribution in outlets not commensurate with its refocusing strategy.
Data by YCharts
While there's no guarantee the plans will work -- they include ditching licensing deals, revamping stores, moving toward higher-margin accessories, and emphasizing luxury -- the end market environment looks favorable for two key reasons. First, international travel is back, and it's hard to overemphasize how important the high-end traveler is to a luxury brand like Burberry, notably in its flagship stores in major cities.
Second, as Delta Air Lines management noted recently, the premium customer has done pretty well in the last few years. Household wealth is up $27 trillion for the top 40% of U.S. households since 2019. That's usually excellent news for high-end spending, particularly if you consider that the high end of that 40% is more the market that Burberry is targeting.
On a risk/reward basis, Burberry looks like a compelling buy.
