VEU ETF: A Cheap Mid-Teens P/E Outweighs Near-Term Technical Concerns (NYSEARCA:VEU)

Foreign companies may be, at long last, set to notch their highest earnings per share since 2009. According to data from Yardeni Research, the all-country world ex-US index (ACWX) is forecast to see a strong EPS boost over the next 12 months. Nothing is set in stone, however, and a global economic downturn could certainly threaten the bullish fundamental outlook.

The good news is that ex-US stocks trade at bargain prices. The forward P/E of the index is just 13.3x, nearly eight turns cheaper than the S&P 500’s earnings multiple. What’s more, price action has generally been favorable since October 2023 in the Vanguard FTSE All-World ex-US Index Fund ETF (NYSEARCA:VEU).

I was bullish on the ETF back in January, and I reiterate a buy rating today. While there are concerns on the chart and as we are in the throes of a bearish seasonal stretch, VEU’s valuation and inexpensive cost are positive features. Shares are up 11% total return since the previous assessment, slightly underperforming the S&P 500’s 13% advance.

ACWX Index Forward EPS Notches a Fresh Recovery High

ACWX Index P/E Just 13.3x

According to the issuer, VEU seeks to track the performance of the FTSE All-World ex-US Index. Vanguard notes that the fund provides a convenient way to get broad exposure across developed and emerging non-U.S. equity markets around the world through a passively managed portfolio construction strategy, using index sampling.

VEU has grown slightly in size since my last analysis in the first quarter. Total assets under management is now $56.2 billion as of September 3, 2024, up from $53 billion early in 2024. The ETF sports a low annual expense ratio of seven basis points and its forward dividend yield is more than double that of the SPX at 3.0%. Share-price momentum has been solid, but not euphoric, over the last handful of months. A weaker US Dollar Index since Q2 has helped VEU keep pace with US equities.

VEU also features a strong risk ETF Grade by Seeking Alpha’s quant system, primarily due to somewhat modest volatility trends and a diversified allocation. Finally, liquidity metrics are robust given average daily volume of almost two million shares and a median 30-day bid/ask spread of just two basis points.

Inspecting the portfolio, the 3-star, Gold-rated ETF by Morningstar plots along the very top row of the style box, with a nearly even split among value, blend, and growth. There’s hardly any SMID-cap exposure. For that reason, I include the Vanguard FTSE All-World ex-US Small-Cap Index ETF (VSS) in my portfolio for international exposure away from large caps.

As it stands, VEU trades at less than 14 times earnings, while its long-term earnings growth rate is solid at 11.1%, resulting in an inexpensive PEG ratio of 1.26x. The fund has moderate factor scores elsewhere.

VEU: Portfolio & Factor Profiles

VEU offers further diversification for US investors since the Information Technology sector, among the worst-performing areas of the S&P 500 in the past three months, is just 13.7% of the portfolio. That’s more than 15 percentage points below I.T.’s weight in the SPX.

Financials and Industrials are relative overweights, underscoring the ETF’s tilt more toward value and cyclical equities.

VEU: Holdings & Dividend Information

The canary in the coal mine today are bearish seasonal trends. I’ve been writing about it for several weeks now, and the media is increasingly focusing on it. September is off to a rough start for just about all stocks, and for VEU, the final month of the third quarter has been lower in each of the past four instances and down 2.8% when analyzing the last decade.

So, this is a near-term bearish catalyst that must be acknowledged. October and November have seen better returns, however.

VEU: Bearish September Trends

The Technical Take

With a low cost, depressed valuation, strong diversification, and weak seasonals, VEU’s technical situation is decent for the most part. Notice in the chart below that shares have been on the rise since notching a low in October of 2022. A Q3 correction last year helped set the stage for a rally through this past summer. Lately, though, we’ve seen weaker RSI momentum readings as VEU’s price approached an uptrend resistance line.

Also take a look at the long-term 200-day moving average – it is rising, suggesting that the bulls control the primary trend. With long-term resistance at its mid-2021 highs, there is a high amount of volume by price from there down to the upper $40s. So, I’d like to see VEU reach new highs to clear the bar, so to speak. Long-term support is between $52 and $55 – that’s where VEU dipped to during the Tokyo Black Monday in early August.

Overall, VEU is trending higher but is working off near-term resistance.

VEU: Rising Long-Term Trend, All-Time High Poses Possible Resistance

The Bottom Line

I have a buy rating on VEU. I like its low valuation and diversification benefits to US stocks, while its technical trend is generally healthy from a long-term view.