We recently published a list of . In this article, we are going to take a look at where Shopify Inc. (NYSE:SHOP) stands against the other best foreign stocks to buy now.
The close of 2024 is resulting in a much needed paradigm shift for US and global equities. Ever since the coronavirus pandemic disrupted our way of living in 2020, investors have had to deal with one setback or another. While the immediate effect of the pandemic equities saw technology stocks soar, other sectors, such as energy and travel didn’t.
Then, inflation rose in 2022 forcing central banks worldwide to rapidly hike interest rates, which naturally made equities much less attractive than before. Since then, rates have been high in Europe and the US as well as in the developing world. However, with the European Central Bank’s (ECB) and Bank of England’s (BOE) latest rate cut decision, things appear to be changing.
The ECB got the ball rolling in June after it cut interest rates by 25 basis points and then followed up with another 25 point cut in September. These decisions have been influenced to some extent by economic growth concerns. During the press conference after she announced the rate cuts, ECB President Christine Lagarde commented that while her organization had initially expected European economic growth to pick up, this hadn’t been the case.
As per Lagarde, “We have revised downwards the outlook for growth, because the consumption that we had anticipated for now, essentially, because net income has begun to increase, inflation has gone down significantly and we were expecting consumption to pick up, has not picked up. And I think that we will be looking at that carefully when we produce our next growth and GDP numbers.” During Q2 2024, the EU and broader Euro area’s GDP grew sequentially by 0.
3%, which was similar to the Q1 figures. On an annual basis, the EU’s GDP marked a 0.8% growth while the Euro area’s growth was 0.
6%. Lagarde’s comments were accompanied by the ECB’s updated growth estimates for 2024, 2025, and 2026. While it had expected these to sit at 0.
9%, 1.4%, and 1.6%, respectively, the updated estimates reduced all of these by 0.
1 percentage point. With the EU’s economic performance, one country’s under performance is relevant for the broader area as well as an analysis of foreign or exUSA economies. This country is .
The German economy was 2023’s worst performer among major economies as it contracted by 0.3%. In Q2, the GDP contracted by 0.
1% sequentially and missed analyst estimates of 0.1%. This slowdown came at a time when inflation jumped by 2.
6% in July and accelerated by 0.1 percentage point over June. The economic uncertainty has also affected German investors, as data from the ZEW economic research institute’s economic sentiment index shows that the index fell to a whopping 3.
6 points from an earlier 19.2 points. Analysts had expected it to sit at 17 points.
Additionally, investor perceptions of the economy fell to levels last seen just as the coronavirus had started to wreak havoc in May 2020 and sat at -84.5. Germany is struggling because the aftermath of the Russian invasion of Ukraine has cut its supply of cheap Russian gas.
While this has increased costs, on the demand side, Germany is suffering from a weak Chinese economy. Data from the Federal Statistical Office shows that Germany’s exports to China in May sat at €7.5 billion for a 14% annual drop.
Between January to May, the exports were €40.3 billion, for a 10%+ drop over 2022. With German firms such as LVMH experiencing a 14% Chinese sales drop in Q2 and Swatch witnessing a 30% drop in H1, it’s clear that Chinese consumers are in no mood for discretionary spending.
This has also led to Goldman recommending that investors sell European stocks with Chinese exposure as it is worried about its basket of European stocks. As per the , while “a great deal of earnings downgrades have already occurred year-to-date for our luxury basket, we worry that more could take place.” It adds that “Also, the valuation premium of the basket has deflated, but remains on the high side of its history.
” Pessimism about China is evident in the data as well. During Q2, the economy grew by 4.7%, with retail sales whimpering through a 2% growth rate.
This was the slowest since December 2022, when the Zero COVID lock downs were still making their impact across the country. In the aftermath of the disappointing data from the , Goldman and Citi, which had earlier expected the Chinese economy to grow by 4.9% and 4.
8%, their estimates to 4.7%. Goldman commented “We believe the risk that China will miss the ‘around 5%’ full-year GDP growth target is on the rise, and thus the urgency for more demand-side easing measures is also increasing,” while Citi stated, “We believe fiscal policy needs to step up to so as to break the austerity trap and timely deploy growth support.
” Yet, while Germany and China have struggled, the world’s largest economy America has thrived. US GDP grew by 3.1% annually in Q2, lending credence to the argument of American exceptionalism.
On a quarterly basis, it was up by 0.7%, despite the fact that interest rates remain at a 24 year high. This growth has created ample room for the Federal Reserve to keep rates high, and now, most expect that an interest rate cut is incoming.
Due to America’s dominant role in global economic affairs, the Fed’s decisions have a global impact. For European stocks, it meant that the day before the rate cut decision, the index tracking Europe’s top 600 stocks gained 0.5% while the British stock market jumped by 0.
7%. To make our list of the best foreign stocks to buy, we ranked the 40 most valuable exUS stocks in terms of market capitalization by the number of hedge funds that had bought their shares in Q2 2024. Out of these, the top stocks were chosen.
Care was taken to ensure that stocks that were founded in America but are headquartered in Ireland or other jurisdictions were eliminated. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points.
( ). An enthusiastic customer completing a purchase and receiving an order confirmation via one of the companies online sales channels. Shopify Inc.
(NYSE: ) Shopify Inc. (NYSE:SHOP) is an internet commerce services provider that enables businesses to sell their products online. Unlike retailers, who typically place merchant products on their platform, the firm has a different business model.
This means that while all purchases take place on the merchant’s website, they are redirected through Shopify Inc. (NYSE:SHOP) to enable merchants to preserve their brand identity. This is one of the most unique business models in the market, and the firm has expanded its business to allow merchants to run analytics and marketing campaigns.
Shopify Inc. (NYSE:SHOP) also offers payment services, and as a cyclical stock, its shares are vulnerable to economic downturns. The company’s exposure to Europe in particular has created headwinds as it led to an 18% share price drop in May after Shopify Inc.
(NYSE:SHOP) guided 19.5% revenue growth which marked a deceleration over the previous year’s figure. Any pickup in consumer spending stemming from lower rates and economic growth can create tailwinds.
Polen Capital mentioned Shopify Inc. (NYSE:SHOP) in its . Here is what the firm said: “Shopify’s business model combines 1) a mission-critical software business where merchants can run all their business operations from one dashboard and 2) a payments business with a long runway to increase attach rates and grow alongside merchants.
Additionally, we believe the business possesses significant optionality to continue attaching existing merchant solutions and adding more merchant services as high-margin cross-sells. With several powerful tailwinds at their back (e-commerce, mobile commerce, social media, digital payments, seamless omnichannel, DTC, cloud software digitization) and a highly scalable business model, we think their growth will likely be stronger for longer than investors expect.” Overall SHOP on our list of best foreign stocks to buy now.
While we acknowledge the potential of SHOP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SHOP but that trades at less than 5 times its earnings, check out our report about the . Disclosure: None.
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