Investing Abroad: Analysts Pick 10 Foreign Stocks With Room to Run
Foreign stocks have outpaced the U.S. for the past five years. But analysts say investors can still find good opportunities in select foreign companies and U.S. multinationals that do substantial business overseas.
CNBC.com asked market pros to pick their favorite foreign stocks or exchange-traded funds. All of them can be bought directly in the U.S. or trade as American Depositary Receipts. Here are 10 of their picks.
Globally, large-cap stocks are trading at lower valuations to their smaller counterparts and that's an attractive feature for many analysts. Jeff Everett, chief investment officer at the Templeton Global Equity Group, likes German conglomerate Siemens. As Europe's largest engineering company, Siemens makes products ranging from cellphone network components to trains.
"Siemens' amount of restructuring is rare, especially for a German company," said Everett. "The company reported better-than-expected results. They sold thier handset business and we expect excess cash to be used for higher dividends and more buybacks."
Templeton owns Siemens in its funds.
Dow Jones Stoxx 50
Investors who want a basket of large-cap foreign stocks may want to consider this exchange traded fund, according to Jack Ablin, chief investment officer at Harris Private Bank. The Dow Jones Stoxx 50 is comprised of 50 supersector blue-chips from 18 countries. Top holdings include BP, GlaxoSmithKline, HSBC and Nestle.
"It's like the Dow Industrials of Europe," said Ablin. "I think based on historical performance relationships, large-cap could outperform small-cap by as much as 20%. Large-cap is cheap here, it's even cheaper there."
New Oriental Education & Technology
If you can only own one stock in China, Tony Sagami, senior Asia and Technology analyst for Money and Markets, says this is it. New Oriental Education provides services to teach English to a very eager Chinese audience that wants to get a piece of the American dream.
"They know the ticket to get admission to a U.S. college means you have to have a basic understanding of English," said Sagami. "They virtually have a monopoly of that in China and parents are willing to pay any amount of money to achieve that for their children. This is the single best stock opportunity I've seen in my lifetime."
Sagami does not own the stock.
Ned Gray, senior portfolio manager for the Delaware Global Value Fund, looks for stocks with broad geographic diversification, giving them flexibility against changes in individual markets. One of his top recommendations that meets those qualifications is Finnish mobile phone giant Nokia.
"It's clearly a market leader with dominant exposure to growing markets," said Gray. "Nokia has great intellectual property built into their portfolio. It's a combination of diversification in broad markets and good margin potential."
Delaware owns Nokia in its portfolio.
Uniao de Bancos Brasileiros
Investors looking for opportunities south of the border might want to consider Brazil's No. 3 bank, according to Uri Landesman, head of global growth strategies for ING Investment Management.
"I think that this is a bank that's going to be taken over," said Landesman. "I think Brazil is an economy that is going very well, partly driven by reform, wealth moving into the population and interest rates have been coming down."
ING Investment Management owns Uniao de Bancos in its funds.
SPDR Russell/Nomura Small Cap Japan
This exchange-traded fund is comprised of the smallest 15% of Japan equities, in terms of float-adjusted market capitalization. The index was down 21% last year and another 5% this year. However, Eric Roseman, investment director for Sovereign Society, an offshore investment group, says these stocks usually come back with 30%-60% gains.
"Japan small-cap is probably the cheapest segment in the overseas market right now," said Roseman. "You have capital gains potential because these stocks come back strong when they do recover, plus you make money on the currency. This is one of the true great bargains in the market today."
Roseman says investing in the ETF is much easier and cheaper than trying to buy individual Japanese stocks.
Garmin International designs and manufactures GPS (Global Positioning System) devices. The company is incorporated in the Cayman Islands and has principal subsidiaries in Taiwan, the U.S. and the United Kingdom.
"This is the best technology stock an investor could own," says Sagami of Money and Markets. "They have over 55% of the market for GPS. They are applying this technology to marine uses, rental cars, airplanes and jogging devices. It's a rapidly growing market with tremendous opportunity.
Sagami does not own the stock.
Paris-based LaFarge is the world's largest cement maker, with a current market capitalization of $27 billion. Gray of the Delaware Global Value Fund likes LaFarge because it is one of a very small number of dominant players in the cement industry globally.
"It is not awash with competition," said Gray. "They have very solid pricing power. Infrastructure development is an important part of their business. There will be good demand in that area for quite some time, even when there is a decline in housing."
Delaware owns LaFarge in its portfolio.
ING's Landesman likes this online brokerage firm for investors who don't mind bottom fishing in Japan. Monex Beans, the third-largest listed online broker in Japan, recently posted a 46% decline in quarterly profit. With stock prices in Japan stagnating since a year ago, trades carried out by individuals has fallen. However, Landesman believes this stock has upside potential.
"It's a very well-run company by a very successful entrepreneur," said Landesman. "As volumes pick up in Japan, this is a company that will likely do well and a bigger broker may want to buy it eventually."
ING Investment Management owns the stock in its funds.
Of course, another way to take advantage of the boom in foreign economies is to invest in U.S. companies with substantial operations overseas.
Oilfield services giant, Schlumberger, is based in Houston. However, growth in its overseas operations--especially Europe, Africa, the Middle East and Asia--helped propel the company to report its 7th straight record quarter in April.
"Companies that service oil rigs like Schlumberger are very attractive because there is a waiting list for new rigs," said Sovereign Society's Roseman. "With oil prices so high, oil companies want to expand production and that's where the earnings growth is coming from."
Roseman does not own shares of Schlumberger.
Phyllis Burke Goffney is a news editor for CNBC.com. She can be reached at firstname.lastname@example.org.