Five stocks for investors who want to broaden their growth horizons beyond the S&P 500

First, to make the case that U.S. technology firms aren’t always in the lead, here is a comparison of average annual returns over the past 10 years for the S&P 500

and its sectors through Sept. 13, with the same calculations for the previous 10-year period:

The technology sector has been the runaway leader over the past decade, but the previous 10-year period told a different story.

In addition to looking beyond tech, which has such a high concentration within the S&P 500, investors might want to add exposure outside the U.S. to take advantage of growing middle classes in emerging markets and innovation in other developed markets.

Priyanka Agnihotri of Brown Advisory is based in London and manages the Brown Advisory Sustainable International Leaders Fund BISLX, which was established Feb. 28, 2022. Brown Advisory tends to hold 25 to 35 stocks of companies based in any market outside the U.S. During an interview, she discussed three of the fund’s holdings, including HDFC Bank
HDB,
which is the largest private bank in India, where government-owned banks have traditionally dominated financial services. The fund’s benchmark is the MSCI ACWI ex-U.S. Index.

James Thom, Abrdn’s senior director of Asian equities, also named three examples of non-U.S. stocks during an interview, including HDFC Bank. He is based in Singapore and works on various portfolios for the firm’s private and institutional clients. HDFC Bank is held within the India Fund
,
a closed-end fund established in 1994 that is available to U.S. investors, and for which Abdrn Asia Ltd. serves as adviser. IFN’s benchmark is the MSCI India Index.

Here are three-year compound annual growth rates (CAGR) for the five companies’ revenue and earnings per share through 2022, along with estimated two-year CAGR for these items from 2023 through 2025. For comparison, the same growth numbers and estimates are shown for exchange-traded funds that track the above-mentioned funds’ benchmarks and the S&P 500:

Click on the tickers for more about each ETF, company or index.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

The sales and EPS growth through 2022 and the growth estimates through 2025 are mixed but tend to be higher than those of the indexes.

Here are comments from Agnihotri and Thom about the five companies.

HDFC Bank

HDFC Bank is growing rapidly as private banks take business in India from government-owned banks, which haven’t been investing in new technology, according to Agnihotri. She said she was comfortable with HDFC because the bank had taken a careful approach during multiple credit cycles. Now it has become a leader in making consumer loans easily available through smartphone apps.

Both Agnihotri and Thom pointed to a new growth opportunity for the bank through mortgage lending, which has been expanded after a complex transaction with its former holding company resulted in its taking on mortgage and life insurance subsidiaries.

Thom said HDFC has had a “fantastic track record, delivering consistent growth” along with that of the financial industry in India. He also pointed to the bank’s scale as a driver of efficiency.

He described an evolution of the country’s banking market, with an accelerating transition to digital services as the government develops its Open Network Credit Enablement system. This system “helps to aggregate personal data and credit histories on the digital network,” to make credit easier to access for people in all socioeconomic groups,” Thom said. The identification will be done with a thumbprint. Thom called this development “interesting and exciting,” because it can open more forms of credit to large groups of people, rather than limiting the banks strictly to collateralized loans.

Deutsche Boerse AG

Deutsche Boerse AG
XE:DB1
is expected by analysts working for brokerage firms to show the slowest increases in revenue and earnings per share over the next two years among the five companies in the table, above. However, Agnihotri believes the company is reasonably valued, especially when taking cash flow into account.

She said that as the owner of the largest derivatives trading exchange in Europe, Deutsche Boerse has a special advantage because of high barriers for potential competitors and because it is also a major player in securities trading, custody and settlement services. The company has also been expanding its data and analytics business, she said, through bolt-on acquisitions.

“The business model is very attractive — 80% of the cost is fixed,” she said “You can grow with little incremental cost.”

LVMH Moet Hennessy Louis Vuitton SE

It is easy to expect the popularity of luxury brands to continue to increase as the world’s middle class expands. LVMH Moet Hennessy Louis Vuitton SE
FR:MC
has no shortage of luxury brands, including the ones that are part of its name, as well as Tiffany, Christian Dior, Fendi, TAG Heuer, Bulgari and many others.

Agnihotri said she admires the company’s “incredibly long-term” approach to managing the “balance between desirability and exclusivity” for its brands.

The conglomerate’s last major acquisition was Tiffany in 2020, and according to Agnihotri, it has already doubled the unit’s profits by increasing investments in marketing for what was already a strong brand. She said LVMH had done the same after acquiring Bulgari in 2011 and Dior in 2017.

“Dior is growing 20% annually. They have been able to raise prices [for a brand that is] potentially under-monetized,” she said.

Budweiser Brewing Co. APAC Ltd.

Budweiser Brewing Co. APAC Ltd.
HK:1876
is based in Hong Kong and majority owned by Anheuser-Busch InBev SA
BUD.
So this is, essentially, a U.S. company, although most of its beer sales are in China.

Thom said that no matter where this subsidiary is based or its stock listed, he believes in the company’s growth potential in China’s premium beer market. You can see in the table that analysts expect rapid earnings growth through 2025.

He described the segmentation of the beer market in China, with local brands taking the less expensive segment. As the middle class grows, there is more opportunity for the company beyond its flagship Budweiser brand, especially in the country’s wealthier coastal cities, he noted.

At the “super-premium level,” Budweiser Brewing Co. is set to compete well with brands such as Corona, Hoegaarden and Stella Artois, he said.

The stock has fallen 30% this year, with dividends reinvested, as concerns over China’s slowing economic growth have taken their toll. But Thom said he still believes the company is well-positioned as middle-class household formation continues its long-term upward path in the country.

Taiwan Semiconductor

Investors may be concerned over the prospect of China making an aggressive move to take over Taiwan. But no matter how the political situation develops, Thom said he is confident about Taiwan Semiconductor Manufacturing Co. Ltd.
TSM
because “it is almost as if it is too important to fail.”

“Irrespective of whether it is in Taiwanese or Chinese control, the world needs what they produce. They have an effective monopoly on advance chip manufacturing,” he said.

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