Australia Strategy: Global leaders update

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
12 March 2021, 8:00 AM
Sectors Covered:
Junior (Emerging) Resources, Bulk Materials

  • The dominant global consumer and technology franchises continue to leverage structural shifts accelerated by the pandemic.
  • Q4 results largely exceeded expectations across this cohort, supported by economic recoveries unfolding quicker than expected.
  • Many cyclical stocks are also now poised to best leverage the 2021 vaccine roll-out and the progression to a new “normal”.
  • We expand the list of stocks profiled to 20, including global staples franchises (JnJ, Unilever), industrials (Caterpillar) and further tech leaders (Tesla).

Looking through February volatility

Global equities dipped in late February as investors pushed 10-year US Treasury note yields up to ~1.5% back to pre-COVID levels. This erased the US stock market’s yield advantage over bonds crystallising weakness in the S&P500 and a sharp fall in the NASDAQ.

Tech stocks are more sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when rates rise. While spikes in bond rates are disconcerting, yields are rising off an extremely abnormal (low) base.

They are also a positive lead indicator for economic growth, which ultimately drives corporate profits which are a core ingredient for equity performance.

Other tailwinds are also aligning including Biden's $1.9 trillion economic aid package, a solid recovery in US consumption data and better than expected corporate earnings in many markets. These all link to earlier than expected deployment of a COVID-19 vaccine.

Headwinds and tailwinds

The consensus of market economists forecasts the AUD to appreciate into the 0.80-0.85 range by the end of 2021, with some forecasts even higher. This is an obvious headwind for Australians looking to invest in offshore stocks.

Similarly, heightened regulatory scrutiny (tax, anti-trust, competition) is a notable risk to account for.

However in many cases, the structural forces supporting the outlook for many international stocks looks capable of overwhelming the incremental impact of currency, particularly as these trends compound their benefits into the medium-long term.

The global technology and consumer franchises are a prime example where names like Amazon, Alphabet (Google), Visa and Mastercard have managed to compound average EPS growth of a whopping 20-50% over the last 5 years.

Recent 4Q results (summarised from page 3) confirm that the pandemic in many cases continues to accelerate the migration of demand into areas including e-commerce, cloud computing, digital media and payments supporting compelling structural growth drivers behind many of these stocks.

Many of these structural themes are difficult to access via the ASX.

International leaders – updates


Apple’s Q4 result strongly outpaced bullish estimates with EPS and revenue up 34% and 21% respectively. The key growth vectors, iPhone and Services, both showed meaningful margin expansion, and Wearables continued to benefit from an increasing halo effect. Structural tailwinds were evident as the 5G upgrade cycle drove a 57% increase in Chinese iPhone revenue, and iPads were deployed at the greatest rate ever in Japan/Germany. Though Apple face tough earnings comparisons in the coming year, the company retains unique pricing power and appears likely to revise iPhone forecasts higher for the coming quarter.


Amazon reported strong earnings in Q4 as revenue and EPS were both ahead of guidance and consensus estimates. Continued acceleration in online retail demand, increasing prime member engagement and international expansion drove core business growth. AWS continued its impressive revenue growth, however, may face tougher comparisons and margin pressures in future quarters. Though COVID related costs have increased, Advertising revenue continues to accelerate and has material potential upside. Jeff Bezos announced that he will transition out of his role as CEO and into his new role as Executive Chairman, noting that his focus will now be on “new products and early initiatives”.


Alphabet reported another strong result in Q4, beating expectations at both the top and bottom-line. Total revenue increased 24%, driven by an acceleration in Search & YouTube and a 47% increase in the Cloud business. Operating margins continued to expand as TV dollars shift online and digitisation trends support the momentum of Cloud, Play and Hardware. Key catalysts will be management’s ability to push Cloud along the path to profitability and realising significant revenue from the Other Bets segment. Google continues to battle international lawmakers and the US DoJ on anti-trust regulations and could face greater headwinds under a Biden-led Government.


Facebook’s Q4 results exceeded consensus estimates. Ongoing growth in e-commerce and direct response advertising, drove strong revenue growth, which also helped further expand margins. Management was again conservative regarding its outlook for this year. Given the tougher comps due to the firm’s solid performance in the second half of 2020, top-line growth may not be as impressive in the second half of this year. Facebook expects consumer demand to shift slightly more toward services (like travel) from products this year, which may be a headwind to revenue growth as Facebook advertising has lower exposure to service industries.


Microsoft’s Q4 result was a broad-based beat with particular strength in Teams, Cloud and Gaming. Sales were strong across business size and sector, indicating that enterprises are prioritising IT spend giving the recovery further runway. Management have guided to double-digit revenue growth in FY21 as margins improve and fundamentals remain healthy across the board. Increased competition and regulation remain the key risks, though Microsoft appear to have managed to remain outside the immediate regulatory spotlight of the Biden Administration.


Visa’s result demonstrates strong execution despite significant earnings headwinds. Revenue and EPS beat expectations as value added services increased, though cross border transactions remained weak. The rollout of contactless payments continues to be a tailwind, and the recent entry into the Crypto/Digital Wallet space has significant upside potential. After focusing on reducing expenses during the pandemic, Visa appear well positioned to capitalise on the recovery in pent-up demand when (not if) travel resumes.

American Express

Though American Express’ Q4 earnings fell short of consensus, their long-term secular growth prospects remain in-tact. Travel restrictions continued to dampen card spending (down 15% YoY) and reduced card balances eroded EPS. Management continues to view depressed earnings as transitory and have increased marketing spend in order to position themselves as a main beneficiary of the shift to digital/card payments. The recovery of travel, reduction of expenses and enhanced development of tech capabilities will be the key share price catalysts.

View more analysis on global leaders

In our full research note available to Morgans clients, we also provide analysis on:

  • MasterCard
  • Paypal
  • Tesla
  • Starbucks
  • Alibaba
  • Tencent
  • Netflix
  • Disney
  • Nestle
  • Johnson & Johnson
  • Unilever
  • Berkshire Hathaway
  • Caterpillar
Download full research note

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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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