One question that consistently comes across my desk is why we maintain a global value portfolio when growth stocks and U.S. markets are clearly dominating the investment landscape. The answer, quite frankly, is that’s exactly why we’re doing it.
The United States has maintained its position as the world’s dominant economy and market for some time, but this dominance has intensified significantly in the aftermath of the COVID pandemic. Our leadership in implementing relief funds, stimulus programs, interest rate management to combat inflation, and supply chain repairs has been unmatched. Add to this our current supremacy in artificial intelligence development (at least among public companies), and it’s no surprise that U.S. markets now represent about 70% of global market capitalization.
However, this dominance comes at a price. U.S. stocks are trading at significantly higher multiples of earnings, asset values, and dividends compared to many international markets, where valuations are often half of what we’re seeing domestically. While these markets may be out of favor, history has consistently shown that the most successful investors are those willing to venture where others fear to tread.
The Value of Contrarian Investing
Looking back at market history, some of the most profitable opportunities have emerged from moments of market distress. Consider the crash of 1987 – investors who had the courage to buy during or shortly after the crash reaped substantial gains. Similar opportunities presented themselves during the S&L crisis with healthy banks, in the aftermath of the junk bond implosion following Drexel Burnham’s collapse, and during the tech sector’s meltdown in 2002-2003.
Yes, there’s always the possibility that buying into dire situations could result in massive losses if the world truly implodes. But at that point, your stock portfolio’s performance would likely be the least of your concerns.
Current Global Market Dynamics
Europe currently presents what many view as a challenging investment landscape. The Japanese political and economic situation continues to perplex observers, particularly given their substantial debt-to-GDP ratio. However, Japan continues to not just survive but thrive, and we’re witnessing unprecedented success in corporate activism campaigns across Asia, particularly in Japan, where efforts to unlock shareholder value are gaining traction.
This global approach isn’t new. John Templeton pioneered this strategy, famously launching his career by borrowing $10,000 to purchase a portfolio of NYSE-listed stocks trading under $1. While some went bankrupt, the portfolio quadrupled over several years, marking the beginning of his illustrious career. Templeton went on to become a trailblazer in global value investing, achieving impressive compounded returns over a long career.
The Perfect Stock Portfolio’s Global Perspective
Our portfolio’s international approach has proven highly profitable over the years. We’ve successfully invested in Russian steel companies, banks, and mining operations, South African diamond mines, Indian conglomerates, European banks, and British bakeries. By maintaining a global perspective while adhering to our core criteria – reasonable valuations, dividend payments, and conservative finances – we’ve significantly enhanced our returns.
Currently, finding stocks in the U.S. that trade below asset value, maintain strong balance sheets with minimal debt, offer reasonable yields, and remain profitable is increasingly challenging. In contrast, Europe and Japan present numerous opportunities meeting these criteria. We’ve even identified select Chinese companies that qualify under our stringent standards.
Regional Market Analysis
The Chinese market remains a significant concern for global investors. Growth projections indicate a slowdown to 4.5% in 2025 from nearly 5% last year, with further deceleration expected in 2026. This situation could worsen if Donald Trump implements his proposed tariffs. However, Xi Jinping’s government is discussing various stimulus measures, including property market support, increased debt issuance, and potential interest rate and reserve requirement adjustments by the People’s Bank of China.
European markets present an interesting value proposition despite lagging U.S. growth. Unlike the U.S., European markets are heavily weighted toward financials, energy, and industrials rather than tech giants (with notable exceptions like ASML). While their renewable energy initiatives haven’t fully delivered, the sector maintains growth potential. European markets currently trade at roughly half the valuation levels of U.S. stocks while offering higher dividend yields.
Japan's market dynamics remain complex but promising. Despite challenges including high government debt and an aging population, they’ve maintained stability. Recent developments include potential rate hikes amid inflationary pressures and wage growth. The government’s $250 billion stimulus package, focusing on digital innovation and energy cost subsidies, has received positive market response. Many analysts anticipate the Nikkei 225 reaching new all-time highs this year.
New Portfolio Addition: Peabody Energy Corporation BTU
Despite our international focus, our latest addition is a U.S.-based company in perhaps the most unloved sector globally – coal. Peabody Energy Corporation, headquartered in St. Louis, operates globally, serving customers in 25 countries with both thermal and metallurgical coal.
Their recent $3.8 billion acquisition of Anglo-American’s Australian steelmaking coal assets is transformative, potentially tripling their metallurgical coal production by 2026. While developed markets are transitioning away from thermal coal, demand remains strong in emerging markets, particularly China and India. Additionally, coal still generates approximately 20% of U.S. electricity.
Peabody’s fundamentals are compelling:
- Annual revenue exceeding $1 billion
- Substantial free cash flow
- Strong liquidity
- Manageable debt levels
- 1.63% dividend yield
- Trading at approximately 5x earnings
- 75% of tangible book value
While the coal industry faces regulatory and environmental headwinds in Western markets, global demand persists, particularly in emerging economies. The Perfect Stock Portfolio continues to focus on dividend collection and deeply undervalued stocks, maintaining our strategy of beating the markets through patient, value-oriented investing.
© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.