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BERKO: Investment Down Under

Dear Mr. Berko: I know the Australian economy because, before my divorce, we lived there for 14 years. I made a good living and managed to save over $135,000 American. I was in the booming construction business, and in my last five years, I was foreman of a 23-man crew. The money was fantastic.

I can’t find work here that pays as much as in Australia and may return there. I know nothing about the Australian stock market, but I would like to invest about $20,000 each in three Australian stocks as long-term investments. — E.O., Portland, Oregon

Dear E.O.: Other than Antarctica, Australia, with 26 million people, is the driest of any continent on the planet. Australia has the longest fence (a dingo fence) in the world, extending 3,500 miles. It’s the only country where cute little furry naugas (nauga-hides) graze in the Outback along with 1.2 million camels. Australia is the only country with three national Frisbee teams, 67 percent of Australians are overweight and they love Vegemite. However, 75 percent of American men and 60 percent of American women are obese or overweight and don’t eat Vegemite!

Australia has a very active stock market with 2,300 listings and an Australian dollar value over $2.2 trillion. The Australian S&P/ASX 200 Index, which currently trades at 6,160 points, imploded to a record low during the world financial crisis in November of 2007.

The ASX group was created by the merger of the Australian Stock Exchange with the Sydney Futures Exchange in 2006 and is the world’s 10th largest exchange by capitalization. The exchange came public in 2007 with the symbol ASXFY and trades at $53 in U.S. currency. The ASXFY had $1.1 billion in revenues last year, earning $445 million or $2.30 a share.

I know very little about the Aussie exchange or Aussie stocks, so I called an old acquaintance, Dickie Quartermain, whom I first met 40 years ago when he was admitted to ICU in a Kathmandu, Nepal, hospital. Dickie used to train kangaroos to swim under water and wrestle crocodiles. But after leaving ICU with one hand, he decided to join his father’s brokerage business.

I asked Dickie, now a retired, wealthy trader who winters in Burpengary, for three classy stocks that could be winners. He demanded from me a tin of Tim Horton’s coffee for each name. The names he gave: Westpac Banking (WBC.AX-$27), Dicker Data Ltd. (DDR.AX-$4.33) and Wesfarmers Ltd. (WFAFY-$12.54). (These are American dollars.)

Westpac, a $21 billion revenue bank, has excellent operating momentum from core retail and business banking franchises with impressive cost/income performances. Solid economic conditions underpin consistent growth with a low-risk domestic business model. WBC’s advantages: growing economies of scale, dominant market conditions and a superior balance sheet. Pricing power and high credit ratings provide strong platforms that drive growth. And WBC’s balance sheet is wisely built around consumer banking with earning diversity that complements volatile returns from business and wholesale banking activities. WBC has a two-year price objective at $36. The dividend yielding 7.3% should increase yearly.

Dicker Data is a $1.5 billion wholesaler-distributor of computer data and related products. DDR offers products from venders like Microsoft, Hewlett Packard, Cisco, Toshiba and Lenovo and services over 5,000 resellers. The 20-cent dividend yields 4.9%. Revenues for 2019 could come in at $1.7 billion, earnings could double to $0.40 and Dicker could run to $8.

Wesfarmers, a $67 million revenue conglomerate, operates retail businesses, coal and mining production, safety product distribution, chemicals and fertilizer production and investment businesses in Australia and New Zealand. WFAFY owns 900 liquor stores, 810 Coles supermarkets, 88 hotels and 711 convenience stores. It also offers home and car insurance and much more. Revenues were down significantly last year, though should recover nicely in 2019. The $0.71 dividend yields 5.75% and may remain unchanged this year while WFAFY tries to move its stock price to the mid-teens early in 2020. Did you know that kangaroos can’t walk backward?

(Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected])

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