4 High-Quality Global Compounders Hiding in Plain Sight
Insights from Polen Capital whitepaper on Global Compounders
Welcome to issue #004 of Invested Capital. Each week, I share one letter/idea to help you invest smarter, think long-term, and build lasting wealth. My goal? To cut through the noise and bring you timeless lessons from great investors so you can make better decisions with your money and your life. Join 330+ readers learning how to compound capital and wisdom, one issue at a time.
In this week’s issue, I’m sharing my highlights from Polen Capital’s whitepaper Hidden in Plain Sight: Our Quest for Quality Around the World (2023).
International stocks have recorded a decade of underperformance relative to the U.S.
In this letter, Polen Capital highlights 4 high-quality international businesses to capitalize on the tailwinds of international growth
Global Compounder #1: ASML
"It's unique businesses like ASML that offer long-term-oriented managers the opportunity to generate idiosyncratic returns in international markets.” -Polen Capital
ASML is the sole manufacturer of EUV lithography machines.
“According to our research, it is the only company in the world that can do it at this level of sophistication.”
Mission-Critical
“With this machine, semiconductor chip companies such as Taiwan Semiconductor can print extremely advanced designs onto wafers that allow chips to be manufactured at leading nodes.”
Global Compounder #2: LVMH
"The ability of luxury goods companies to 'manufacture' demand is perhaps their most compelling value proposition.” -Polen Capital
Visionary Manager with a Timeless Brand
“The modern incarnation of LVMH was founded and grown through the stewardship of current chairman and CEO Bernard Arnault. If one were compiling a list of the greatest CEOs of all time, we think Arnault’s name should be on it. He is the ultimate long-term thinker, cultivating brands for decades. He appears to have recognized long ago that every aspect of a luxury business—from its designs to its craftsmanship to its marketing strategy—must be meticulously nurtured to create a truly timeless brand.”
Global Compounder #3: Mercado Libre (MELI)
"MELI has created a highly unique online business with the proverbial three legs to the stool - e-commerce, fulfillment, and payments/credit - which reinforce each other and strengthen the company's competitive advantages.” -Polen Capital
The “Amazon” of Latin America is a dominant player in 3 major categories
E-commerce
Fulfillment
Payments
What sets MELI apart from the rest is that each of these categories reinforces each other, creating a perpetual growth machine.
Long-Term Oriented Management
“In our opinion, MELI’s resilience can be attributed to a management team that thinks in years rather than calendar quarters and has been willing to make the necessary (and sometimes expensive) investments in areas such as installment payments,10 fulfillment and logistics, consumer credit, off-platform payments, loyalty programs, and advertising.”
Defended Against Competitors
MELI’s competitors are being forced to retrench for various reasons, leaving LatAm all to itself
Americanas was involved in an accounting scandal
Shopee exited Argentina and reduced operations in Mexico, Chile, and Colombia
Global Compounder #4: CSL
"The combination of high barriers to entry, stable oligopolistic industry structure, and high margin specialty markets makes CSL an attractive franchise.” -Polen Capital
What does CSL do?
“CSL’s primary revenue source is the collection and fractionation of blood plasma, which is used to treat a litany of immune-deficiency disorders.”
Capital intensive
“We estimate these facilities cost approximately $1B to manufacture. This is a long, expensive process with significant regulatory hurdles, as these companies are collecting, shipping, processing, and reselling human blood.”
Stable Oligopoly
“The lower margin profile and hefty regulatory oversight deter competitors from entering the market. As a result, CSL operates in a stable global oligopoly with only two other scaled peers.”
100% Incremental Margins?!
“Our research indicates that many of the new treatments that CSL develops are often at nearly 100% incremental margins. CSL’s core blood plasma business is also highly cash-generative, allowing it to expand into adjacent market areas such as flu vaccines and renal disease treatment, which are also higher-margin segments than its core business.”
Tl;dr
4 high-quality global compounders worth looking at by Polen Capital
ASML
LVMH
Mercado Libre (MELI)
CSL
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Thanks for reading
Happy Compounding
Matt Harbaugh
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Source:
Polen Capital-Hidden in Plain Sight: Our Quest for Quality Around the World