As emerging markets consumers earn more, they are spending more on high-end alcohol, says Eric Bokota, portfolio manager for the FPA International Value Fund.
Bokota likes spirit-maker Diageo as a way to tap into this new class of drinkers.
“I think people are still drinking spirits in developed markets, but we are also seeing Diageo expand its presence in emerging markets. The company has a dominant position in the industry and is continually increasing its operating margins,” says Bokota.
The $2.4 million fund was launched in December 2011 and is up 9 percent year-to-date.
Away from the bar and inside the back office, Bokota likes Germany-based SAP, saying it is another high-value company selling at a deep discount.
“It has a high quality [enterprise resource planning] business which generates a stable recurring revenue stream for maintenance subscriptions and also grows at an above-average rate. Despite this, it sells at a significant discount to fair value at 14 times earnings,” says Bokota.
In the advertising arena, Bokota is bullish on the French giant Publicis, which he says is well positioned not just globally, but also on the Internet.
“It’s got a strong position in emerging markets and it’s also well positioned digitally as we continue to see advertising revenue continue to transition to offline to online media. And despite these characteristics, it’s trading at a significant discount to its fair value,” says Bokota.
Finally, Bokota is a fan of Swedish lock-maker Assa Abloy, which he says is now heading in the right direction after years of mismanagement.
“Assa Abloy is a case of a company where business was built through a series of acquisitions in the last few years and only in the last five years has it been run properly with a new management team. The company has expanded its operating margins despite the difficult economic environment and, of course, we like the fact that its cheap, selling at only selling at 13 times earnings,” says Bokota.
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