Following Thursday and Friday's precipitous selloff in the equity market - and the last month's for that matter - I once again found inspiration to look elsewhere for investment opportunities. Where? Overseas.
The lowering of the U.S. equity market's tide has taken domestic stocks out to sea, yet many foreign stocks haven't felt the same pressure. Some of them have actually thrived despite widespread weakness. It's not an exhaustive list, but in this article we'll look at three American Depositary Receipts (ADRs) that just got a whole lot more attractive this week. (To find out more on how ADRs are used, see What Are Depositary Receipts?)
This Denmark-based pharmaceutical company offers something many of its American counterparts can't - constituency. Novo Nordisk (NYSE:NVO) has grown the top and bottom lines for three consecutive years. A surprising number of other biotech outfits haven't been able to match this performance, and that may be why the stock is up 21.4% for the last twelve months while the average biotech stock is ahead by about 7.3% for the last year.
Novo put itself back on the radar again this week when the company announced a licensee deal with Emisphere (Nasdaq:EMIS) to use Emisphere's technology to make an once-per week, oral diabetes treatment. There's actually some decent competition in this diabetes treatment space; Eli Lilly (NYSE:LLY) and Alkermes (Nasdaq:ALKS) are also working on a once-per-week oral dose. Novo's drug Liraglutide is expected to hit he market first though. There is a daily treatment on the market already called Byetta; it is produced by Amylin and Eli Lilly jointly. Byetta generated more than $630 million in sales for 2007. So, Novo's opportunity is sizable.
Australian metal company Sims Group (NYSE:SMS) has spent the last few weeks getting focused on its core business - recycling. Sims sold off its steel distribution division, and acquired Pacific Coast Recycling, LLC. I like the focus, and is seems to work well.
A merger with Metal Management last year has led to record sales and profits this year, but a "then-versus-now" comparison of the raw numbers may not be totally meaningful. However, the company has proved to be profitable with the two enterprises melded into one. For the last nine reported months, Sims posted $357 million in EBITDA, and a net profit after tax of $182.5 million.
The company has acknowledged that many of the charges for the merger have not yet been booked, and will show up in Q4's numbers. However, the forecast growth still makes Sims a compelling longer-term idea. Analysts are looking for $132 million in earnings for Q4 (not counting any one-time, extraordinary acquisition expenses), which translates into profits if $314 million for the year. Both the top and bottom lines are on pace for pro-forma double-digit growth. (For more on analysts earnings expectations' and what it can mean for a stock's price, check out Can Earnings Guidance Accurately Predict The Future?)
Chinese job search and human resources company 51Job Inc. (Nasdaq:JOBS) may not be able to brag about phenomenal fundamentals, but they're solid - and getting better. 51Job filed its annual (2007) results with the SEC on June 27, and for the second straight year we've seen sales and earnings move higher.
The story here is emerging growth. For all of 2007, 51Job earned 50 cents per American depositary share American depositary share (ADS), which represents two common shares, leading to a price-to-earning ratio of 35.8. During the first quarter of 2008, the company earned 11 cents per ADS. Annualizing that total (multiplying it by four) puts the price multiple somewhere around 42.
With the need for employment services growing in densely populated China, 51Job is set for continued growth.
It's worth noting that many ADRs were still guilty of poor performance over the last month, just like U.S. stocks. The epidemic doesn't seem to be quite as widespread overseas though. And in this environment, we need all the help we can get.
Discover how ADRs can help you gain international exposure in Investing Beyond Your Borders.