Five Ways Investors Can Still Make Money In Foreign Stocks

International markets were supposed to be the place to make money in 2010, but so far have failed to live up to their billing.

From credit issues in Greece, Spain and Ireland to inflation fears in China, investors have been selling rather than buying when it comes to emerging and developed markets.

Despite a rough start, the US stock market is outperforming its global counterparts, with a loss of about 2 percent so far this year compared to a 3 percent drop in the rest of the world's markets.

But does the early turmoil mean that the multinational story is dead?

Jeff Cox
Senior Writer
CNBC.com

"The long-term prospects, probably even the intermediate prospects, for emerging countries in the stock markets are excellent," says Jordan Kimmel, market strategist with National Securities in New York. "As always, you have to be selective and not paint it all with the same brush."

While strategists are taking a more cautious view on international investing this year, they still believe the global growth story remains intact but will require vigilance.

Five ideas to consider:

1. It's a Stock-Picker's Market

As Kimmel points out, investors expecting to take broad exposure in foreign markets then sit back and await the returns will be disappointed.

There will be pockets of strength, mainly among individual companies rather than sectors or broad country plays through exchange-traded funds.

"This is going to be a year for specific stocks with specific stories. It's not just a liquidity-driven market anymore," says Quincy Krosby, market strategist with Prudential Financial in Newark, N.J. "Overall this should be a year with very specific fundamentals and doing your homework."

Investors need to comb the international landscape for companies with strong corporate governance and stocks that pay handsome dividends.

"You can't afford to overpay for any business anywhere in the world," says Alan Wilson, president of Talon Asset Management in Chicago. "It will come back to haunt you. You can't be mesmerized by growth rates in China, Brazil and India and think you can pay 30 times earnings. You will lose money."

Wilson looks at technology companies such as Cisco

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[CSCO  Loading...      ()   ] and EMC

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[EMC  Loading...      ()   ] that fit the bill for multinationals poised for growth.

2. Take a Long-Term View

While buy-and-hold strategies have lost popularity with the volatility of the US markets, strategists encourage those who want to go overseas to take a more traditional three- to five-year view.

Patience will guide investors through the current rough spot for foreign markets, which may have become overbought in light of the analyst fanfare, and pay off later.

"Longer-term, emerging markets probably should play an important role in any global investor's portfolio. But like anything else you've got to pick your spots," says Curt Lyman, managing director at HighTower Advisors in Chicago. "By the time the popular press and a lot of the commentators are touting something, the cat's already out of the bag and that's probably what happened in this particular case."

Foreign markets could stumble around for the first quarter of two this year but are likely to regain footing thereafter, analysts say.

"It comes with increased volatility, and therefore entrance points are important," Kimmel says. "If you're an aggressive trader very likely a lot of people would get stopped out of emerging markets on a pullback here. It's long-term sound and I very much believe it's the engine to world growth."