Many methods exist to help you diversify your overall portfolio. One way to increase your international exposure and participate in profits abroad is through foreign-owned stocks or ADRs (American depositary receipts). In many rapidly growing developing countries, a lack of transparency and a dearth of regulations make it difficult to ensure the legitimacy of companies you're interested in. Furthermore, issues related to trade execution and currency conversion can make the process of purchasing foreign stocks problematic. But buying ADRs of foreign-owned companies that trade on major stock exchanges in U.S. dollars is a good solution. These companies would have had to meet tough listing and transparency standards in order to be accepted onto a major exchange. Therefore, the information you learn about these stocks is probably reliable. (To learn more about ADRs, read ADR Basics: What Is An ADR?.)
Some good companies to consider for international exposure include: Telemig Celular Participacoes S.A (NYSE:TMB), Aluminum Corp. of China (NYSE:ACH) and Petro Canada (NYSE:PCZ).
Telemig Celular Shows Promise
Telemig Celular looks very attractive from a valuation standpoint. The company has a forward P/E ratio of 5, $453 million in cash, and $75 million in debt. Thus, the markets have created an opportunity for investment in one of the strongest cellular companies in Brazil. Over the long-term, it would not be surprising to see profits increase, given Telemig's large cash levels and low debt. For investors interested in long-term international growth, Telemig Celular is worth a second look.
Aluminum Corp. of China Shines
Whether or not the world cares to admit it, China will continue to be a great long-term growth story, even if the country experiences an eventual slow down in the short-term. The National Bureau of Statistics stated on October 20, 2008 that China experienced 9.9% growth in GDP during the first nine months of 2008. Aluminum Corp. of China is a great way to get involved in Chinese expansion. Output has fallen for the Chinese aluminum producer, but this has set up a classic entry point for long-term investors. The company is trading at a forward P/E of 3.4 and analysts have all but ignored the company, with the exception of Credit Suisse, which remains 'neutral' on the stock. Aluminum Corp. of China currently pays a dividend of $1.00, which is a 9.40% yield.
For long-term investors seeking to gain exposure in Chinese growth, this is a great time to get involved. Shares may be volatile over the short-term, but Aluminum Corp. of China should have future staying power. Smart investors who purchased shares in Aluminum Corp. of China during the period of market weakness should reap future rewards.
Petro Canada: Attractive Valuation
Shares of Petro Canada are cheap from a valuation standpoint. The company has a forward P/E of 4, $1.89 billion in cash and $3.32 billion in debt. Analysts have slightly improved outlook of the stock with three rating it 'hold', 'sector outperform' and 'market perform', while two rated it 'neutral'. Hence, the strong oil and gas sector has been brought down to attractive levels. Petro Canada has a decent balance sheet that includes a fair amount of cash and a current P/E ratio of 1.3. It would not be surprising to see Petro Canada trade higher over the long run due to its attractive valuation. As of 2:00pm EST on Monday October 20, the stock was a big gainer, with a jump of $3.24, or 15.3%. A conference call for analysts questions and company statements is scheduled for October 23.
For investors who want to diversify their portfolios by participating in the long-term growth some developing countries are seeing, ADRs are a liquid, more transparent, and easy way to get involved. However, investing in ADRs requires that you look beyond the current challenges plaguing the world economy. If you are patient and willing to ride out the ups and downs, ADRs are a great way to diversify your overall portfolio long-term. (By investing globally and trading locally, American depositary receipts offer the best of both worlds. To learn more, read ADRs: Invest Offshore Without Leaving Home.)