Motley Fool Australia

3 companies I wouldn’t buy for their global diversification

A2 Milk shares

Diversifying internationally doesn’t have to mean buying companies with all-foreign earnings like Westfield Corp Ltd (ASX: WFD). You can just as easily buy Australian businesses with a strong overseas segment, like:

Goodman Group (ASX:GMG)

Goodman Group has minimal debt, and earns income from a diverse group of sources, with 35% of Earnings Before Interest and Tax (EBIT) coming from Asia. 43% comes from the ANZ region, while a further 4% comes from the Americas and 18% from the UK and Europe.

The company’s one major drawback is its high price – Goodman is priced at 1.9x its Net Tangible Assets, which makes it one of Australia’s most expensive property trusts. I note that management has also been selling shares on market at recent prices, and I too would be more inclined to sell than buy Goodman today.

A2 Milk Company Ltd (Australia) (ASX:A2M)

A2 Milk is a fresh milk and baby formula company that currently makes most of its money in Australia and New Zealand. However, the company also has operations in the USA, UK, and China, each of which is a much larger potential market compared to ANZ. China in particular has been growing rapidly and over the next 5 years A2’s ANZ segment could potentially become irrelevant.

However, buying a2 shares is not an effective way to globally diversify your portfolio, in my opinion, as its international businesses are either too small or unprofitable.

Ardent Leisure Group (ASX: AAD)

Although primarily an Australian business until recently, Ardent has been divesting most of its Australian interests and will become predominantly a US leisure company focused on its core brand, Main Event. While Ardent will retain its Australian bowling business and theme parks, these already account for less than half of the total business, and Main Event has a long growth runway ahead of it.

However, as I wrote here, early signs suggest that competition is already hurting the Main Event business, with same store sales falling 2.9% at the most recent half year. I’m not convinced that Ardent has a winner in Main Event, and would not be buying into it just yet.

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Motley Fool contributor Sean O'Neill owns shares of A2 Milk. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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