These stocks are ‘twice as cheap’ as the S&P 500 with a ‘multi-decade discount,’ says Ritholtz’s Josh Brown
Overseas stocks are significantly undervalued compared to the U.S. stock market and present an opportunity for investors in 2024, according to Ritholtz’s Josh Brown. The Ritholtz Wealth Management chief executive pointed out that the MSCI All-Country World Index ex-U.S. is currently trading at a 34% discount relative to the S & P 500 index of large U.S. stocks. Over the past 20 years, the average discount has been 16%, Brown added. “I’m telling you, overseas developed market stocks are twice as cheap as they have been over the last two decades,” Brown told CNBC’s “Closing Bell” on Wednesday. “There were some huge gains in different markets last year that not a lot of people were predicting.” Investors can access the index, which tracks stocks in 22 developed and 24 emerging markets, through the iShares MSCI ACWI ex-U.S. ETF . The fund had a total return of 20% in 2023, compared to 26% for the S & P 500. The MSCI index is currently priced at 12.8 times earnings, compared to the S & P 500’s 20 times, according to Morningstar data. ACWX 1Y line Brown acknowledged concerns about lower growth rates and geopolitical issues abroad, which is a factor behind the lower valuation multiple compared to U.S. markets. “Yes, there are some good reasons. Yes, geopolitics. I’ll take all of that,” he said. Yet Brown, who co-founded Ritholtz in 2011, believes overseas stocks could still outperform if central banks cut interest rates. “I’ll still tell you that if we’re going into a rate-cutting cycle, even if it’s a modest one, these stocks can work and you’re taking less risk because [their] starting valuation is not just a little bit cheaper, it’s a multi-decade level of discount that you’re getting,” Brown stated. He said investors could target high-quality companies in developed countries like Japan and Europe. “You don’t have to buy low quality,” Brown added. “You could buy overseas high quality in Japan, Europe and you could win.” In Brown’s view, there was “no reason” to believe investment in non-U.S. stocks won’t perform in 2024 as well as they did in 2023.
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