A View of Value Investing From Abroad

 | May 29, 2014 | 2:00 PM EDT  | Comments
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Investing has quickly become a global exercise. Thanks to the Internet, the flow of global information has become seamless. Balance sheets of European or Asian companies have become just as accessible as those of local companies. More and more emerging companies are also listing on U.S. exchanges, making it even easier to invest in international markets. The upcoming IPO of the Chinese Internet giant Alibaba is a prime example. 

Recently, some value investors gathered for the third annual London Value Investing Conference to pitch some value investments. Not surprisingly, the ideas came from all corners of the investing world, including, of course, the U.S.

One name mentioned was the animal healthcare company Zoetis (ZTS), which is based in New Jersey. Zoetis earns the majority of its business selling vaccines and medicines for livestock. Given the continued appetite for meat consumption and growing concern over the quality of meat, Zoetis should continue to see solid results. In addition, Zoetis also makes vaccine and medicines for pets, and we all know how important pets are to their owners.

Zoetis was a spinoff from Pfizer (PFE), and unlike many drug companies that treat humans, Zoetis has very little risk from patent expirations, and the company's $4.3 billion in revenue is not reliant on one drug. Shares trade for $30, or 29x trailing earnings and 17x forward earnings. Many value disciples have a hard time with price-to-earnings ratios at this level, but growth creates value.

Ingredion (INGR) was another U.S. name mentioned in London. Ingredion is an Illinois-based food ingredient company formerly known as Corn Products. The company is currently valued for $5.6 billion, or 16x earnings, and the stock yields 2.2%. Shares trade for $76. Corn Products was a company focused primarily on sweeteners, but the recent name change was part of the company's shift away from focusing solely on sweeteners and moving into other food ingredients.

What is interesting about these "value" picks is that both favor quality over quantity, choosing the growth that comes from a quality business than simply quantitative fundamental valuation metrics. Companies that can generate consistently growing cash flows are going to create the most value over time. Medicine for pets and food ingredients are certainly two businesses that offer that consistency.  

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