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How I Would Play the Breakout in Europe with Value & Momentum

(00:08):
Hi guys, I’m Tim Melvin. Welcome back to a better way to wealth. And today we’re going to talk about how to use some of my strategies to exploit the breakout to 21 year highs that occurred late last month in European and United Kingdom stocks. Now you can use ETFs. You can use mutual funds. There’s a lot of different ways to do it, to, to play the stocks. You can look for the blue chips. What I’m going to do is use the value momentum strategy that I’ve laid out for you guys before now, ordinarily value investors, hate momentum and momentum hates value investors. And to me, that just makes absolutely no sense. The truth of the matter is that value does work over time to provide very high rates of return. Momentum also works very well over time to provide very high rates of return. Now, the thing about this is value works in a longer timeframe value stocks usually take two to three years to deliver the full return possible.

(01:05):
Maybe even longer in some cases, momentum stocks that all tends to play out in three to six month timeframes. You know, there’s a trend to trend in motion remains in motion when a moment with momentum stocks and as soon as they lose momentum, you clear them out. Move on to the next one. So what we’re going to do is we’re going to look through the United Kingdom and Europe. We’re going to put half of the money into momentum stocks, and these tend to be the super exciting, fast moving high growth stocks. And we’re going to put half the money into value stocks. Now what’s really cool about using value and momentum. You rebalanced once a year. So in other words, its value is way up and momentum is down. You sell a little bit of the value to put it in, to keep it always equal at the end of the year.

(01:48):
So rebalancing the strategies once a year is a pretty good idea to keep from getting kind of out of whack there that this should work out extremely well. What happens is when value’s hot and working well, momentum is not as high. When momentum is really hot, then value’s kind of being ignored. So we’re going to end up at the same place with the same high returns from both portfolios that we would have had as standalone. However, because they’re zigging and zagging, they have historically reduced the overall volatility of a high return portfolio. So that’s what we’re going to strive for here. And we’re going to split the money up here. We’ll give you a couple of momentum names and a couple of deep value names. And I think when you put these together in a portfolio to exploit this 21 year breakout in Eurozone stocks, I think you’re going to have find a smooth path to very high returns in your overall portfolio.

(02:39):
So let’s get started. Our first momentum stock is ASM L. This is another loans based semiconductor equipment company. They make systems that X the tiny circuits onto computer chips. They are not just a leader in the market at the high end of the market for this stuff. They absolutely dominate the marketplace. All of the major foundries, Samsung, Taiwan, semiconductor Intel pick one doesn’t matter. They’re using a SML equipment. Quite obviously they do business all over the world. This is an extremely high growth company. This company has what I like to call twin momentum as my favorite kind of momentum. Not only is the price action going higher, it’s being driven by powerful, fundamental momentum. Sales are going up. Revenues are going up. Margins are improving. Everything great is happening for this company. And that is attracting institutional buying pressure that continues to push the stock smooth up and to the right and the type of momentum we absolute love.

(03:48):
Absolutely love to see in our favorite momentum stocks. So ASM L we think it’s going to be fantastic. Management thinks so too, as they are continually buying back stock in the open market with excess free cash flow. So I expect great things from the stock. I think it’s going to push a lot higher over time. So that’s the first stock that goes into your Eurozone breakout value momentum portfolio. Then we’re going to add global Shipley’s symbol. Here’s GSL, real simple story guys for stuff to get from point a to point B, you got to ship it. Most of the shipping in the world is still done by container ships. Container ships are at least up for this year. Next year, the demand explosion from the initial reopening of the global economy and particularly the U S economy is ongoing. There’s still logged jams and imports.

(04:42):
It’s not over. It’s going to continue well into 2022, possibly beyond which great about this is great. It’s a terrible term use in this situation because it is creating some inflation, some logins and supply chain, but the shipping companies were caught flat-footed. They didn’t see it coming. There have been a real slow down in new ship orders. And we don’t see any real ship orders coming in until 2023 or 24. So this supply demand imbalance is driving up profits for the shipping companies, just going to continue a global ship leases in a bent Hastick position. They did expand their fleet by acquisition by about 50% over the last year. So they’re bringing on ships that are already fully leased and adding to the revenue stream from day one. So this company is well positioned to make a lot of money from this particular trend.

(05:38):
Let me just check my notes here. We’ve got a little bit of insider buying. We’ve got a private equity firm. That’s going to be reducing its position. No problem be Riley, the brokerage and investment firm that you may have heard me talk about from time to time stepped up and took a big portion of the percentage from the private equity firm. They are one of the smartest money investment firms, and they do have a principal division and invest their own money that has put up just spectacular returns over the, over the year. So seeing these guys come in, seeing insiders buy as the stock makes new highs, that is so powerfully, bullish insiders tend to buy near new lows. We see them buying at new highs. We know that they know something that the public does not know. They’re not just buying because the stock is cheap.

(06:27):
They’re buying because they truly believe it’s going a lot higher and it’s going a lot higher soon. So anyway, GSL is your other momentum stock for the Eurozone breakout portfolio. And this is kind of an unusual moment. Momentum stock it’s actually pays a dividend of 4.6%. So you’re going to collect some cash while this stock continues to sewer higher well into 2022, I believe possibly into 2023 and beyond. So now let’s look to our value situations. First off, if we’re betting on an economic recovery in anywhere, I don’t care where it is, we’re going to start with the bank. So we’re going to start with Barclays bank. The cymbals BCS European banks have gotten all kinds of bad publicity and it’s reflected in the stock price case. Barclays is one of the leading high street banks in the United Kingdom. They have a fiercely loyal, mostly retail, very sticky deposit base.

(07:24):
The depositers aren’t going anywhere. They have a great commercial bank in the United Kingdom, and they have a global investment bank. It’s a little better than middle of the pack, but it is profitable. And they have a division in the United States and a strong presence in the United States credit card markets. So it is a global bank, but it’s real depositor base and banking operations are based primarily in the United Kingdom in parts of Western Europe. So we think this bank is a fantastic way to make a bet on the recovery of the United Kingdom and the rest of your, and we’re doing it at prices that can only be described as ridiculous, compare this to some of the large banks in the United States. Like this is like buying bank of America, JP Morgan, at 50% of tangible book value, theoretically, the bank could be liquidated of and double your money.

(08:15):
So we’re not paying much for the assets we’re paying about seven times earnings. The bank has been buying back stock. There’s a small dividend. I think this thing trades at least a book, if not beyond over the next year two, that’s a double probably be beyond because once the pandemic really is over and that’s going to happen, I think in Europe a little quicker than it is here because vaccine acceptance has been a little better over there. So as they continue to roll out shots and get that done, the economy will start growing. And as it grows, the book value of the bank will grow. So this will get to whatever book is. Little bit beyond that. So I think you can at least double your money and what is actually a fairly secure position in a leading United Kingdom bank trading. It’s something that I’d have to consider a once or twice in a lifetime sale price valuation.

(09:04):
So Barclay’s bank symbol BCS. There’s the first of the two value stacks we’re going to put into our Eurozone breakout 21 year portfolio. So next up, we’ve talked about this one before, and we all know the story, right? Electric vehicles. We talked about it earlier this week. They are going to change the world. There’s no doubt about that. It’s going to take longer than everybody thinks. But all these hot chat startups everybody’s telling you to buy, ignore those, the stock we’re going to buy is Porsche. Why would we buy Porsche simple Porsche owns 53% of Volkswagen. So now you’ve got the Volkswagen brand. You’ve got audio, you’ve got porch, Lamborghini, Bugatti and a bunch of bunch of other brands that do business all over the world. The key thing here is Volkswagen. Volkswagen is going to be the leader in the electric vehicle market, your Tesla saying, Hey, we want to sell a million electric vehicles by 2025.

(10:05):
Volkswagen’s like, cool dude, way to go. We’re going to do 2 million easy that year. So electric vehicles are coming. The startups aren’t going to make it, it’s going to be Volkswagen. Porsche owns most of Volkswagen and also has a deal with a Swedish company ABB to make some electric vehicle charging stations. So pretty exciting stuff. What’s really exciting. Compare this to Tesla and a good Gillian time sales, very small profits. We can buy Porsche for just about 70% of book value, 60%, 67% of book gain. Just five times earnings. We collect a decent dividend of over 3% while we’re waiting for things to work out favorably for us. So that’s the second stock for our Euro stocks, 21 year breakout portfolio. That’s two value stocks, two momentum stocks a year from now. I’m going to set myself a calendar reminder. We’ll come back and revisit how this has done and rebalance the value momentum mix in the European portion of our portfolio. So anyway that my friends is a better way to wealth. I’m Tim Melvin.