SINGAPORE (Dec 25): As promised last week, this is my Global Portfolio of choice (see table). Three companies each from China and the US, and two from Japan. I have invested 79% of my US$500,000 seed capital and maintained a 21% cash balance. You will notice I have increased the weighting for one of the companies (and reduced that for two others).

The aim of this portfolio is to help the man in the street make better investing decisions. I also want to prove that you can be your own fund manager, successfully and with minimal costs.

While I will measure my portfolio’s returns relative to the MSCI World Net Return Index, my ultimate objective is to achieve absolute profits of 10% annually over the long run in US dollar terms. After all, value investing is about making absolute, and not relative, returns over a long period of time.

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Before I delve into a short description of the merits of each company, let me recap my stock selection process.

I first used quantitative filters such as growth in sales, operating profit (Ebitda) and margins to see which companies had quickly grown their profitability since 2011. To get a sense of valuations, I used enterprise value-to-Ebitda (EV/Ebitda) as opposed to price-to-earnings to better reflect the differences in cash or debt holdings.

I also took into account a host of qualitative factors —  the story, if you will — and finally settled on these companies. You will find they are diversified across different countries, industries and business models. You may be familiar with some, but likely not all, of the names.

Though a fairly diverse portfolio, each company exhibited growth in two or more of the quantitative filters. And six of the eight companies are in a net cash position. I have also included their Fundamental and Valuation scores, calculated using AbsolutelyStocks’ methodology.

Alibaba Group Holding (China)

Alibaba is an investment in China’s rising middle-class consumption and Asia’s growth prospects. These should drive its dominant e-commerce business. I prefer Alibaba to US-based Amazon because the former’s e-commerce business is actually profitable and generating good cash flows. Amazon’s current earnings are from cloud computing, where margins are likely to be squeezed.

Alibaba has achieved astounding sales growth of 51% annually over the past five years. It has also maintained high Ebitda margins of just under 40%. The company is in a net cash position and has a high return on equity (ROE) of 21%. One drawback is that -Alibaba trades at a relatively high EV/Ebitda of 37.3 times. Alibaba has the highest beta in my portfolio at 1.24.

Shenzhen-based BYD is in a prime position to ride the future growth in adoption of electric vehicles and rechargeable lithium-ion batteries. China accounted for more than half of global sales of EVs for the quarter ended Sept 30, 2017, according to Bloomberg. This is largely driven by the government’s aim to curb pollution.

Though Elon Musk’s Tesla is similarly positioned to ride the EV wave, I prefer BYD because it already manufactures and sells EVs commercially. I see BYD as investing not just in a future technology, but also in a company that is already very profitable, with earnings growing y-o-y.

BYD’s sales have grown 16.7% annually since FY2011 while Ebitda margins have expanded from 11.3% to 15.6%. The stock trades at an EV/Ebitda of 14.5 times. That said, one area of concern to me is the company’s high net-debt-to-equity ratio of 106%.

This is a real gem. The stars are aligned — from technology to demography to macroeconomic growth and portfolio theory.

Relatively unknown, it is a fast-growing Japanese company that operates the largest web portal and mobile application for part-time and temporary jobs in Japan.

Over the past five years, sales grew 23.7% annually while Ebitda jumped 51% annually. Ebitda margins shot up from 11.1% to 30.4%. DIP also has net cash and an ROE of 45%.

At an EV/Ebitda of 15.5 times, I think it is an incredible deal. Sales will continue to grow with Japan’s economic recovery and ageing demographics — which cause an increasing need for companies to fill job vacancies because of labour shortages. Increasing usage makes the platform more in demand, benefiting from the network effect. And being digital, DIP’s long-term marginal costs approach zero, without diminishing returns, thus improving its Ebitda margins as sales rise further.

To top it all off, it has a beta of only 0.58, helping to reduce my portfolio’s volatility.

Facebook has successfully leveraged the network effect to disrupt the traditional print media industry. The company’s revenue is mainly from digital advertisements, which is a space that Alphabet (which owns Google) dominates. That said, I prefer Facebook because it has a much lower sales base — meaning that it likely has more room to grow.

Since its IPO in 2012, Facebook’s growth has been astounding. Sales are growing at 49% annually. And despite this, its Ebitda margin is at 53%. It is the best example of a company with no diminishing returns, and almost zero supply constraints.

Consequently, an EV/Ebitda of 24.1 times is substantially undervalued if growth can be maintained. The company also has net cash and ROE is high at 24%.

The largest of the “Big Three” US automakers, General Motors’ business has seen a strong turnaround since being bailed out by the US government post-global financial crisis. Though still predominantly focused on internal combustion engine vehicles, GM is looking to the future by investing in battery-powered and alternative-fuel vehicles along with autonomous-vehicle technology. GM said it plans to deploy its auto-nomous cars in some parts of the US by 2019.

GM’s sales have grown by 2.1% annually over a five-year period, which is not high compared with EV maker BYD. But the stock trades at a very undemanding EV/Ebitda of only 2.7 times and has expanded its Ebitda margins by 3.3%. Excluding debt from its finance operations, the company is in a net cash position. One drawback is that GM has a relatively low ROE of 7.2%. This is expected, given high capital intensity.

Shanghai Haohai Biological Technology Co (China)

Shanghai Haohai manufactures and sells absorbable biomedical materials in China. These are used in orthopaedics, medical aesthetics, ophthalmology and post-surgery wound care, making the company a strong proxy to China’s fast-growing medical and aesthetics sector. A number of Shanghai Haohai’s products have a leading market share in China.

Listed in April 2015, Shanghai Haohai has seen its sales grow by 22.9% annually from FY2012 to FY2016. Its Ebitda margin is maintained at about 40%. To me, this suggests that the company has strong product differentiation and pricing power, making its products difficult to compete against. The company’s EV to Ebitda of 9.7 times means valuations are undemanding and the company is in a net cash position with an ROE of 11.5%. Shanghai Haohai has the lowest beta in the portfolio.

Disney’s globally diversified business covers the media, entertainment and leisure industries. These will benefit from rising spending as the global economy improves. Disney owns and operates world-famous resorts in the US and France. It also has interests in Hong Kong and Shanghai resorts. Disney recently made an offer to acquire select 21st Century Fox assets for an enterprise value of US$66 billion using shares. This will add content to its direct-to-consumer offerings.

This is my bet on a traditional company that is now fighting back against the new digital businesses. I believe Netflix may have seen its best days and Disney will come out benefiting.

From FY2012 to FY2017, Disney’s sales have grown 5.5% annually while Ebitda margins have increased by 4%. Valuations-wise, Disney trades at an undemanding EV/Ebitda of 11.7 times and has an ROE of 21.2%. That said, the latter is due in part to the company’s use of debt.

Towa manufactures semiconductor moulding and singulation equipment. The company’s moulding equipment has the largest market share in the world at 42%, according to Gartner. Rising use of semiconductors in the Internet of Things, autonomous driving, artificial intelligence and smartphones should drive Towa’s growth down the line.

Over the past five years, revenue has risen by 10% annually while Ebitda margins have increased by 3.1%. Yet, the stock trades at an undemanding EV/Ebitda of 8.9 times. Do note, however, that net profits for FY2018 will be lower y-o-y due to the absence of tax benefits. Nevertheless, the company still expects double-digit operating earnings growth. Towa’s low beta of 0.6 should further reduce the volatility of my portfolio.

Summary Each of the stocks was selected on the basis of strong growth potential, where earnings are not just sustainable but also likely to grow even better than sales. Yet, valuations are either low or reasonable, taking into account its future potential.

As a portfolio, I minimise the volatility with a portfolio beta of only 0.67. Many of our stocks also have low correlations. This effectively lowers my risk, even as I aggressively go for growth.

Tong Kooi Ong is chairman of The Edge Media Group, which owns The Edge Singapore

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.

My global portfolio: Individually aggressive stock selection but defensive as a whole

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