- XPeng (XPEV): Strong growth in vehicle deliveries to sustain with new model launches. International expansion will also support growth.
- Equinor (EQNR): Norwegian oil company with low breakeven assets and robust visibility of free cash flows in the next few years. Dividend growth likely.
- Sea Limited (SE): Exposure to the high-growth Southeast Asian e-commerce market and digital financial services. Possibility of margin improvement is a likely catalyst for stock upside.
- Rada Electronic Industries (RADA): A small-cap name from the defense sector that caters to the $6 billion global market for tactical radars. With rising geopolitical tensions, growth is likely to accelerate.
Diversification of a portfolio can be in the form of exposure to different sectors of the economy. Investors also diversify by holding high-beta (growth stocks) and low-beta (income stocks) names in the portfolio. Another diversification strategy is to consider exposure to global stocks.
Data indicates that U.S. large-cap stocks have delivered an average annual return of 6.4% between 1970 and 2021. For the same period, international large-cap stocks have returned 7.5%. This data underscores the importance of a globally diversified portfolio.
There is another interesting piece of data that supports the view of relatively higher exposure to global stocks in 2022 and beyond. Since 1975, the out-performance cycle for U.S. versus international stocks has lasted an average of 7.8 years. Currently, the U.S. stock out-performance cycle has lasted 10.8 years. There is a case for a reversal in trend where international stocks out-perform in the next few years.
ETF Action’s Mike Akins backed this view. According to Akins, “from an allocation perspective, there has been a huge migration into U.S. assets.” However, “we’re already seeing early evidence of that trend starting to change.”
With these factors in consideration, it’s important to have a portfolio of global stocks. This column talks about four global stocks that are worth holding for the next few years.
|RADA||Rada Electronic Industries||$14.89|
I believe that XPeng (NYSE:XPEV) is likely to be among the long-term out-performers from the Chinese electric vehicle (EV) industry. The stock has remained depressed with a downside of 23% in the last 12 months. This looks like a good opportunity to accumulate.
One reason to be bullish on XPEV stock is the company’s robust growth trajectory. For 2021, XPeng reported vehicle deliveries of 98,155. On a year-over-year (YOY) basis, deliveries surged by 263%.
It’s very likely that deliveries growth will remain strong in 2022 and 2023. In October 2021, XPeng launched its P5 sedan for mass deliveries. The impact of the new model on deliveries growth will be seen through 2022. Additionally, the company will commence deliveries of its G9 SUV in the third quarter of 2022. For the coming year, the G9 will boost growth.
It’s also worth noting Xpeng is looking at aggressive expansion in Europe. The G9 SUV is targeted toward international markets with features that include Xpeng’s Xpilot semi-autonomous driving system and lidar technology.
XPeng is also interesting in the long-term considering the aspect of innovation. HT Aero, an affiliate of XPeng, is working on the development of flying cars. The flying car, which can also operate on roads, is expected to be rolled out in 2024.
Overall, XPEV stock looks attractive and a breakout on the upside is imminent. It’s also among the top picks for global stocks to buy and hold.
With energy prices remaining firm at higher levels, Equinor (NYSE:EQNR) is an attractive pick from global stocks in the oil and gas sector.
For year-to-date 2022, EQNR stock has trended higher by 42%. I see more upside as cash flows swell on higher realized oil price. The stock also offers a dividend yield of 1.9%, and it’s likely dividend growth will be robust in 2022.
In terms of the potential cash flows, Equinor guided for free cash flow (FCF) of $45 billion between 2021 and 2026. This was under the assumption that oil trades at $60 per barrel. With oil above $100 per barrel, the potential FCF upside is significant. This will allow Equinor to boost dividends and repurchase.
Additionally, Equinor is targeting $23 billion of investment in renewables through 2026. Higher financial flexibility will allow the company to ramp-up investments in the low-carbon business.
The company aims at becoming a major European supplier of hydrogen by 2035. Considering the current geopolitical climate, the market for hydrogen fuel is likely to gain traction as Europe reduces dependence on Russia.
Overall, Equinor is a cash flow machine. With low breakeven assets, the company is positioned to create long-term value.
Sea Limited (SE)
After touching highs of $372, Sea Limited (NYSE:SE) stock was on a sustained downtrend. However, the stock has bounced back by 47% from recent lows of $85. I believe that the positive momentum is likely to sustain with the company focusing on profitability.
Recently, Sea Limited’s e-commerce unit, Shopee, exited India. Morgan Stanley analyst Mark Goodridge believes that it’s a good decision with the company having struggled to “make the underlying unit economics work in the India market.” Also, with a focus on few core markets, Sea Limited is likely to reduce the cash burn.
It’s worth noting that for 2021, the Digital Entertainment segment reported revenue of $4.3 billion and an adjusted EBITDA of $2.8 billion. While the e-commerce segment revenue was $5.1 billion, the adjusted EBITDA loss from the business was $2.6 billion. Once there is a turnaround in the e-commerce segment at the EBITDA level, I expect SE stock to trend higher.
Sea Limited reported cash and short-term investments of $10.2 billion as of December 2021. There is ample cash buffer to cover for the medium-term cash burn. The markets will however focus on how the company plans to achieve operating level profitability in the e-commerce segment. The exit from India seems to be one step in the right direction.
Rada Electronic Industries (RADA)
With the recent escalation in geopolitical tensions, it’s important to have a few defense stocks in the portfolio. Among the smaller names in the defense industry, Rada Electronic Industries (NASDAQ:RADA) stock looks attractive. RADA stock has already surged by 52% year-to-date. However, at a forward price-to-earnings ratio of 25.6x, the stock is worth considering.
Last year, the company reported revenue of $117 million. The company has guided for revenue growth of 20% for the current year. Furthermore, Rada expects to deliver organic revenue of $250 million over the next three to four years.
The company believes the global addressable market for tactical radars is worth $6 billion. Therefore, Rada is still at an early growth stage. As the company expands globally, revenue growth is likely to accelerate. In 2021, it established a joint venture in India, which is another big market for the defense industry.
Another bullish point to note is that for 2020, Rada reported an EBITDA margin of 13%. For the current year, the company’s margin has expanded to 23%. With operating leverage, the company is positioned to deliver healthy cash flows in the coming years.
I would therefore hold Rada stock in my portfolio of global stocks. If growth sustains, the stock has the potential to deliver multi-fold returns.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.