By Michael Brush, MarketWatch
1. TAL Education Group
Education is seen as a key path to success for Chinese students. But seats at the best universities are limited, and competition is tough. For help, Chinese families turn to TAL Education Group /zigman2/quotes/203067931/composite TAL -5.81% for tutoring.
TAL has strong brand recognition in China. “Parents see grades improve, and that is how they get repeat business,” says Haicheng Li, who helps manage the Chautauqua International Growth /zigman2/quotes/209365367/realtime CCWIX -1.39% and Chautauqua Global Growth Fund /zigman2/quotes/203951792/realtime CCGIX -0.96% , which beat their world large-cap Morningstar category and the MSCI All Country World Index by a substantial margin over the past year.
The upshot has been rapid 30% or more annual revenue growth at TAL, which should continue, Li says. TAL shareholders benefit from rising profit margins as fixed costs get spread out over more revenue.
2. AIA Group
Insurance company AIA Group /zigman2/quotes/205179901/composite AAGIY -1.00% is a play on the growth of the middle class in Asia. As people make more money, they are more apt to buy life insurance. “AIA is in some of the best growth markets for life insurance like China, Thailand and Singapore,” says Bryan Lloyd, a portfolio manager for international equity at Harding Loevner.
In China, customers like to buy insurance through a trusted advisor, which plays to a strength of this company, because AIA has a well-trained and high-quality sales force, Lloyd says. This also serves as a barrier to entry for competitors. Adds Lloyd: “It would be hard to replicate that sales force.”
Software company Atlassian /zigman2/quotes/207177221/composite TEAM -3.96% is based in Australia, and generates about 40% of its revenue from Europe and Asia, says Chautauqua portfolio manager Brian Beitner. So even though it also has robust sales in the U.S., it qualifies as a way to get foreign exposure.
Atlassian provides software that helps employees collaborate on complex projects across different corporate departments. Atlassian’s business model is odd in that it has no sales force. “They just put software on their website, and you download and try it. If you like it, you pay for it,” Beitner says. This unique approach to marketing creates 30% plus annual sales growth speaks to the quality of the product, which serves mainly “knowledge workers” in areas such as coding and information technology.
Shareholder activism, mergers and acquisitions, and restructurings are picking up in Europe as a way to create value at companies, says David Marcus, of Evermore Global Value Fund /zigman2/quotes/203817721/realtime EVGIX +0.42% ). He thinks this trend is worth buying into, which is why Vivendi /zigman2/quotes/204915844/composite VIVHY -1.31% stock is among the portfolio’s holdings. Vivendi is a sprawling media and communications conglomerate that controls Universal Music Group in music publishing, the pay TV company Canal+, and Havas, an advertising company. Vivendi also has stakes in Spotify Technology /zigman2/quotes/207488629/composite SPOT -1.25% , the Italian media company Mediaset /zigman2/quotes/205662566/composite MDIUY +2.14% , and Telecom Italia /zigman2/quotes/201241426/composite TIIAY -1.58% .
Vivendi is in the midst of selling assets and restructuring to streamline the company and bring down debt and costs. “The market doesn’t understand the full value of the assets,” Marcus says. For example, Vivendi just sold a small stake in its Universal Music Group to China’s Tencent Holdings /zigman2/quotes/207908563/composite TCEHY -7.37% at a price which implies a Universal Music Group valuation close to the current market cap for all of Vivendi.
Yandex /zigman2/quotes/204821865/composite YNDX -1.40% is the Russian Google. Why isn’t Google the Russian Google? Because Yandex has first-mover advantage, and language barriers make it harder for Google to transplant its service to Russia, says Lloyd, at Harding Loevner. Yandex is a play on the transfer of advertising online in Russia. It’s also in food delivery, partnering with Uber Technologies /zigman2/quotes/211348248/composite UBER -5.21% . And like Alphabet’s /zigman2/quotes/202490156/composite GOOGL -0.44% Google, it is a play on autonomous vehicles.
At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush is a financial writer who publishes the stock newsletter Brush Up on Stocks.