Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 124

Why global? More choice and cheaper pizza

Going global gives you choice. Just like buying online you get more items at cheaper prices. Your portfolio will benefit from trends and industries that are not available in Australia. The local market is heavily weighted to banks and resources, otherwise known as the two options of debt or dirt. With the mining boom winding down, investors have to look offshore for growth.

The majority of the disruption we see every day is benefitting companies overseas at the expense of our past market darlings. We can see what has been happening in stocks like Fairfax and Channel Ten. New media like Facebook and YouTube are taking eyeballs and attention away from old media. The rivers of gold from print advertising can now be found online. There are some disruptive stocks in Australia that are benefitting, like realestate.com.au and Domino’s Pizza. But they trade on expensive multiples because of the scarcity of these investments in Australia and the weight of superannuation money. The amount of money in superannuation is larger than our domestic stock market. If we look overseas these same trends can be accessed at much cheaper prices.

Which pizza would you choose?

Domino’s Australia (ASX:DMP) has been a great outperformer in the local market but there are four other listed Domino’s companies around the world. All four pay a royalty of 3.1% to the US company which owns the brand, yet Dominos in America (NYSE:DPZ) trades at a one-third Price/Earnings multiple discount to the Australian-listed Dominos. Investors get access to the brand owner at a cheaper price because it’s listed overseas where the choices are greater which makes for cheaper valuations.

Digital ordering

Going global gives you options. We have seen how popular Domino’s has become with digital ordering. Large restaurant chains have benefited tremendously as smart phones allow ordering on the go. Domino’s mobile application even tracks the driver so customers can watch real time as the driver decides which street he is going to take!

Being global you can apply this trend elsewhere. I personally see a similar opportunity in Starbucks as they roll out digital ordering this year in their 13,000 US stores. It’s great ordering coffee ahead – there’s no waiting in line. The app will ask whether the customer is driving or walking to better estimate when the coffee should be ready at the closest store. The introduction of drive-through at Starbucks grew revenue incrementally by 50%. Digital ordering will have a significant impact decreasing lines while increasing sales at peak hour. Like Dominos, once the Starbucks app is downloaded, orders are customised and saved on the phone.

Access to trends

Going global gives exposure to other trends like electronic payments. Customer purchase behaviour has changed every day at stores. How often do you see customers use tap and go with their Visa and MasterCard debit cards? I hardly carry any cash around anymore. I’ve even forgotten my password a number of times as I’m so used to tap and go.

When we purchase on the internet we don’t use cash we use PayPal and our credit cards. They are great businesses clipping the ticket on every transaction. Electronic payments is such an important trend that Monopoly has produced a version of its game without cash, just debit and credit cards. Though I have to admit holding the cash in the original version is a lot more fun.

Access to brands

Many of the brands we use everyday are listed overseas, especially the majority of growing brands revolving around technology, like Google and Amazon. Brands have historically been good investments as they have pricing power. How often do you see Starbucks dropping its coffee prices when prices of beans go down? Compare this to commodity companies like BHP which have to take whatever the market pays. Of the top 100 brands measured by brand value, only five are from Australia (source: Brandz).

Invest in companies that ‘buy commodities, sell brands’

Warren Buffet has become widely successful, mainly because of four words: “Buy commodities, sell brands”. He invests in companies like Coca-Cola. Brands tend to be durable investments as customers seek them out as they know what to expect from the product and service. Apple is a modern day brand example. The semi-conductor chips they buy are commodities but their services and high quality brand differentiates them from competitors allowing them to charge high prices for their products.

We should be more comfortable with these foreign companies. How often do you buy something from BHP? We all have Apple iPhones (it has been estimated we look at our phones 214 times a day) but hardly anyone in Australia buys the shares.

Global provides more options at cheaper prices

Going global gives you access to more items at cheaper prices. You can benefit from all the brands and trends you see every day. Because there are so many disruptive companies investors have plenty of choice leading to better valuations than if they were listed here in Australia. As investors we have figured out it is better to put our money in bank shares rather than bank deposits but what about other trends like ordering over the internet and electronic payments? In Domino’s case, going global gives you a higher quality pizza at a cheaper price.

 

Jason Sedawie is a portfolio manager at Decisive Asset Management, a growth-focused global fund. Decisive owns shares in Domino’s Pizza (DPZ), Starbucks (SBUX), PayPal (PYPL) and Visa (V). This article is for educational purposes only.

 


 

Leave a Comment:

RELATED ARTICLES

Don't believe the SMSF statistics on investment allocation

Three fascinating lessons overlooked by investors

Opportunity knocks in global small caps

banner

Most viewed in recent weeks

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

How retiree spending plummets as we age

There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

Latest Updates

Property

Financial pathways to buying a home require planning

In the six months of my battle with brain cancer, one part of financial markets has fascinated me, and it’s probably not what you think. What's led the pages of my reading is real estate, especially residential.

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

Economy

Household spending falls as higher costs bite

Shoppers are cutting back spending at supermarkets, gyms, and bakeries to cope with soaring insurance and education costs as household spending continues to slump. Renters especially are feeling the pinch.

Shares

Who gets the gold stars this bank reporting season?

The recent bank reporting season saw all the major banks report solid results, large share buybacks, and very low bad debts. Here's a look at the main themes from the results, and the winners and losers.

Shares

Small caps v large caps: Don’t be penny wise but pound foolish

What is the catalyst for smalls caps to start outperforming their larger counterparts? Cheap relative valuation is bullish though it isn't a catalyst, so what else could drive a long-awaited turnaround?

Financial planning

Estate planning made simple, Part II

'Putting your affairs in order' is a term that is commonly used when people are approaching the end of their life. It is not as easy as it sounds, though it should not overwhelming, or consume all of your spare time.

Financial planning

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.