Interesting interview last Saturday with Tom Russo of Gardner Russo & Gardner. The Barron’s format doesn’t exactly let the manager expose each idea very well, so the process behind each idea is harder to gauge. That said, the interesting theme Mr. Russo highlights in this interview is this: some big-brand companies such as Nestlé, Unilever and Heineken that have global exposure and, more importantly to him, significant exposure to emerging-market consumption growth, are currently trading at attractive valuations because they’re seen as “European”. The point here is not to recommend these shares – I don’t do recommendations. It is simply to say that his particular theme is a variation of a theme we see every now and then, as shifts in investors’ “geographic preferences” affects whole blocks of companies that may not be 100% linked to the regions losing favor.
Says Russo: “The best way I’ve found to participate in the growth of developing markets is through European companies whose brands have been present but unaffordable in those markets, and whose managements are willing to redeploy Western-market cash flows into the expansion of those brands in the developing world, where the tastes already exist, the preferences already exist, but affordability hasn’t. (…) We’re buying the rest of the world through Europe, and that gives us the chance to buy a company with solid prospects like Nestlé or Heineken at 10 to 15 times net income.”
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