While international travel may not be everyone's cup of tea with the long lines at customs, language barriers and expensive currency conversions, a little international thinking can do a portfolio good. And given the global nature of today's economy, American investors certainly don't face a shortage of investment choices in foreign companies.
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As of mid-2008, more than 2,250 American Depositary Receipt (ADR) programs represented more than 1,800 companies from over 70 countries listed on global stock exchanges. In addition, many companies domiciled outside of the U.S. list their shares on U.S. exchanges, not as ADRs.
Some hail from as close as Canada or Mexico, while others are based in more exotic locales such as Brazil or China. Regardless of the home country, American investors can gain some nice returns with a few international stocks.
Let's Look At Five International All-Stars:
|Company||Home Country||YTD Performance|
|Bank of Nova Scotia (NYSE:BNS)||Canada||11.8%|
|Brasil Telecom (NYSE:BRP)||Brazil||-17.4%|
|Sociedad Quimica y Minera de Chile (NYSE:SQM)||Chile||28.1%|
|China Mobile (NYSE:CHL)||China||-6.5%|
|Potash Corp. (NYSE:POT)||Canada||17.6%|
|As of mid-day February 13, 2009|
Is Fertilizer Back In Vogue?
Once upon a time, Potash Corp. and its fertilizer brethren were the toast of Wall Street with Potash leading the way. On its rocket ride up, Potash shares flirted with $245 before they came crashing back to reality as the commodities bull market ended abruptly. After falling below $50 in early December, Potash shares have rallied for a better than 60% gain to close at $86.09 on February 12.
Even with the rapid decline from its highs of 2008, Potash is still a $25 billion company. That market cap puts Potash far ahead of Dow components Alcoa (NYSE:AA) and American Express (NYSE:AXP). Investors who want to be exposed to this sector need to watch Potash - the clear-cut leader. Despite this status, put buying has been picking up lately in Potash options, although this is more of a short- to medium-term trend and not indicative of the company's longer-term health.
At a lofty $85 a share, Potash trades at just 5.7 times book value, and its enterprise value exceeds its market cap by more than $2 billion. This isn't to say the shares are cheap per se, just that they are trading at a discount. Potash is a demand story and it has its naysayers, but the company's long-term viability is not in question. (Read more in Digging Into Book Value.)
Chemical & Mining Co. Of Chile A Risky Play
This company makes some of the same potassium-based agricultural products as Potash, although it is dwarfed in size by its Canadian counterpart. Latin American stocks are notoriously tricky places to park one's money, and waiting on a recovery in Chile's economy could be a risky proposition.
These SQM shares currently trade above their one-year target estimate, and over the past 52 weeks they are up almost 69% compared to a loss of 39% for the S&P 500. They trade at 5.5 times book value but don't offer much in the way of a dividend. There are probably more prudent ways to play the fertilizer sector than SQM.
Dialing Long Distance To Brazil
Brasil Telecom is one of the largest telecom providers in Brazil, despite being barely more than a decade old. The company is much like a Brazilian version of AT&T (NYSE:T) or Verizon (NYSE:VZ) in that it provides landline and mobile services. Brazil has been a compelling growth story over the past couple of years across many sectors, and telecom should be no different.
Brasil Telecom definitely has room to grow, as it has only 8 million landline customers in a country of 190 million people, but it appears the company is focused on growing its mobile and internet customer bases, which number 5.6 million and 1.8 million, respectively. The best part of an investment in Brasil Telecom shares is a hefty $3.36 annual dividend, which works out to be an almost 11% yield at its February 12 closing share price of $33.05.
What About China?
Turning to China and its gargantuan customer base, China Mobile is the country's dominant provider of mobile phone service. Its shares are down almost 37% in the past year, although it appears some American investors are taking note of the company's value.
China Mobile's share decline is a familiar theme with many once high-flying Chinese ADRs, although this $189 billion company has real staying power, fortified by the world's largest population. China has an export-driven economy, and its economic fortunes are intimately tied to large purchasers of its goods such as the U.S. The company had talks with Apple (Nasdaq:AAPL) to sell Apple's iPhone in China, but those discussions have broken off, and China Mobile is considering opening its online store for its customers. Investors need to be cautious with Chinese stocks, but China Mobile does offer a fair 3.4% dividend yield and is an interesting long-term growth story.
Banking North Of The Border
By now, most folks that follow the market know the sad story of American banks. Running into the waiting arms of Uncle Sam for taxpayer money to stay alive after leveraging themselves to the hilt and gorging themselves silly on toxic loans and dirty commercial paper, American banks have punished shareholders along the way.
Well, it appears that Canadian banks got it right, and Bank of Nova Scotia is a prime example. It is now North America's seventh-largest bank. Canadian bank CEOs have recently turned back bonuses, with Scotiabank's Rick Waugh taking a 20% pay cut and 70% bonus reduction.
This bank has a sterling Tier 1 capitol ratio of 9.3% and solid exposure to markets beyond Canada. Scotiabank also offers investors no exposure to the U.S. subprime debacle and doesn't need any government assistance. Throw in a 6.7% dividend yield and shares trading at just 1.6 times book value, and we might just have a bank worth investing in. (From lenders to buyers to hedge funds, it appears everyone has blood on their hands. See Who Is To Blame For The Subprime Crisis? and The Fuel That Fed The Subprime Meltdown.)
It's A Big World With Lots Of Opportunities
At this point, it's hard to find a country that hasn't suffered from the global economic malaise we're currently experiencing. But that doesn't mean investors should only "buy American". Quite the contrary. Opportunities abound in international markets, and the names mentioned here offer some balance across several important sectors. Stick with proven histories and potential. Bank of Nova Scotia, China Mobile and Potash all have what it takes to be leaders again.
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