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2 stocks set to benefit from global growth

Christine St Anne  |  25 Sep 2014Text size  Decrease  Increase  |  
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Christine St Anne is Morningstar's online editor. Follow her on Twitter @MstarChristine

 

Companies will continue to struggle to deliver earnings amid meagre economic growth. This was the consensus view among Australia's fund managers following the recent reporting season.

It was also a view shared by Morningstar head of equities research Peter Warnes. In a recent video, Warnes says a lot of the recent lift in earnings was due to cost-cutting and low interest rates.

Finding a similar earnings uptick will be difficult given expectations of lower growth in 2015, Alphinity Investment Management portfolio manager Johan Carlberg says.

Carlberg, who oversees the Alphinity Australian Share [9105] fund, believes that earnings growth is the main driver of share price movements. In fact, the Alphinity team focusses on unearthing undervalued companies that are entering an upgrade cycle.

For Carlberg, such stocks are increasingly those companies that derive the bulk of their earnings offshore.

Indeed, in the most recent reporting season, those industrial stocks that earn the majority of their revenues offshore reported a 10 to 12 per cent increase in earnings, compared to their domestic-focussed peers, which saw earnings rise only 2 per cent.

For Carlberg, however, companies seeking offshore growth must have a measured and well-thought-out strategy. History seems to suggest many Australian companies have not been successful in diversifying offshore -- National Australia Bank (NAB) being a more recent example.

Carlberg names two companies he believes are on track to achieve sustained global growth. Moreover, the earnings behind these companies will further strengthen as a result of "disruptive technologies and changing consumer trends".

"We're keeping an eye on the so-called 'disruption' companies. We are upbeat about companies such as Carsales.com (CRZ) and SEEK (SEK), as this secular trend is showing few signs of slowing down," he says.

Carsales and SEEK's entry into the market caused massive structural change to the Australian media industry. The ability to buy and sell cars on the internet via Carsales and search for jobs through SEEK disrupted the revenues of traditional print media companies.

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