ISMS 6: UK Looks Most Interesting Among the Top 5 Stock Markets

In this presentation, I will introduce you to our FVMR investment frameworkAnd will apply it to assess the attractiveness of the top five developed countries in the world: US, Japan, Germany, UK, and France.Click here to get the PDF with all charts and graphsWhat do you think: Which of the largest country’s stock markets is most attractive?What is your investment framework?Our investment strategies for ETFs and stocks come from our FVMR frameworkWe backtest and optimize the strategy for the factors that have worked best in that marketWe do all our research in-houseWe don’t rely on other people’s researchWe might, of course, get ideas from others, but we then test those ideas in our FVMR frameworkThe benefit of an investment framework is that it forces disciplineIt’s easy to be emotionally affected by market events, which can cause you to make rash and costly decisionsTo avoid this, we stick to our frameworkA robust framework means our strategy relies on data and structure rather than just a feeling or an opinionManagement is responsible for producing earningsInvestors set the price the company trades atThere are Four Elements to our FrameworkFundamentals: Strong profitability shows a company is managed well. We prefer high or rising profitability.Valuation: Shows how the market perceives the stock. We prefer good fundamentals at relatively cheap valuations.Momentum: We try to avoid “value traps” by looking for positive price and earnings momentum. At times, low momentum signals an out-of-favor opportunity.Risk: Prefer low business and price risk. Not every stock is going to fly; some just provide stable returns and strong dividends.For this study, we look at the top 5 Developed Market countries ranked by GDPUSA – US$23trnJapan – US$4.9trnGermany – US$4.2trnUK – US$3.2trnFrance – US$2.9trnEBITDA margin remains high in the US and UK at above 20%, lowest in Japan at 13%Net margin is a remarkably high 12% in the US and UK, double the global LT averageAt 7%, Japan is still double its long-term net margin of 3%At 7% Germany is nearly double its long-term average of 4%US companies have a relatively high 19% ROE, above its 16% LT averageJapan’s low 9% ROE  is partially driven by the low interest rate environmentGermany is just slightly above its 11% long-term averageEuropean companies have paid out more cash to shareholdersUS companies also return cash to shareholders through buybacks in addition to dividends, a reason this number is relatively lowShareholder yield is about equal across these marketsUS remains the most expensive market at 19x PEJapan, Germany, and France at 13xUK super cheap at 10xOn a PB basis, the US is very expensive at 3.7xUK companies are asset-heavyUS revenue/asset: 0.70xJapan: 0.69x, Germany: 0.58x, UK: 0.57x, and France: 0.52xUS companies are most expensive again with price-to-cash flow at 13xAbout 50% higher than the others, which hover between 7x and 8x price-to-cash flowSuper low US dividend yield due to expensive market and payouts coming from share buybacksThe UK market now pays a high 4.2%This shows that the market is cheap and also that inflation expectations are highConsidering ROE/PB, UK is super cheap, and the US is 2x as expensive6x PB in UK for a 16% ROEEarnings expectations collapsed in France, Germany, and UK, but have bounced backHighest expected EPS recovery in the UK2023 growth is expected to be strongest in Japan, weakest in UKOver the past 6-months Germany and France are up about 12%, UK only half that, US neg.The US market is up most over the past three years, Germany is about flat over three yearsYTD winners are Germany and FranceThings to consider about EuropeLack of tech stocks in Europe compared to the US, so when value does well European markets do wellChina reopening is positively impacting sentimentSome speculate that lower oil prices and China opening may prevent a recession in EuropeRisk is that ECB will hike more than the FedUK and Italy have the highest 10-year govt bond ratesEurope – 2.8%Germany – 2.2%UK – 3.3%France – 6%Italy – 4.0%Spain – 3.2%So many risksNuclear warEnergy spikeUS recessionSlower-than-expected China recoveryKey points and the bottom lineConsidering all four elements: Fundamentals, Valuation, Momentum, and RiskThe US is expensive, and the UK looks cheapUK looks most interesting among the top 5 stock marketsClick here to get the PDF with all charts and graphs Andrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast