Global leaders with fortress balance sheets

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
27 April 2020, 11:05 AM
Sectors Covered:
Resources, Metals

We think current events are uncovering a once-in-a-decade opportunity to gain exposure to some of the world’s best businesses. The dominant global franchises offer protection against COVID downside.

Their balance sheets do the same, and should facilitate consolidation/ acquisition optionality ahead of the resumption of impressive growth.

We profile 10 consumer and technology leaders – including Amazon, Microsoft and Visa – where portfolios can ‘trade up’ in quality and improve international diversification.

Investing directly into international shares via the ASX has never been easier, as explained in detail within our full research note (for clients only).

The world’s best businesses…

Many of the world’s leading consumer and technology stocks have retreated 15-25% from their recent highs. COVID-19 will have an impact on these businesses, but largely won’t alter their long-term appeal.

In fact, the pandemic may actually accelerate the pace of technological change required for businesses to compete in a post COVID world around emerging trends in connectivity, mobility, data/storage and consumption.

Many of the companies profiled are already at the leading edge in these areas. Their size, market share and competitive advantages offer near-term downside protection, and attractive value into the longer term.

…with fortress balance sheets

The 10 global leaders we profile in this note (including Amazon, Apple and Microsoft) enjoy balance sheet strength, with typically no material net debt, and in some cases enormous surplus cash balances ($60-100bn for Google, Microsoft).

Technology leaders do suffer during economic downturns, but these balance sheets position these companies uniquely to benefit. Economic downturns and tighter capital markets usually starve smaller competitors of the capital required to compete.

We would expect the leaders to use surplus cash opportunistically to consolidate and/or acquire to get stronger and for weaker competitors to potentially fall by the wayside.

Improved direct access to international leaders

In our last International Strategy Update, we discussed the limitations of investing only in Australian equities (concentration risk, sub-optimal growth exposure) and the clear benefits of investing in international equities (diversification, access to different economic cycles and thematics like technology).

Transferable custody receipts – or TraCRs – allow Australian investors to gain easy investment exposure to global household names. We explain how TraCRs work in the latest research note (login to view).

More information

To view detailed analysis on the 10 global consumer and technology leaders, access our full research note: Global leaders with fortress balance sheets. For more research listen to our full 'Sector Updates' playlist on Soundcloud.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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