Many methods exist to help you diversify your overall portfolio. One way is to increase your international exposure and participate in profits abroad through foreign-owned stocks or ADRs (American depositary receipts).
Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.
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.
SEE: ADR Basics: What Is An ADR?
Telefonica Shows Promise
Telefonica looks very attractive from a valuation standpoint. The company has a forward P/E ratio of 5.71, $8.7 billion in cash and short-term investments and a market cap of approximately $50 billion. This is one of the best investment ideas for those seeking exposure to the telecommunications industry in Spain, Europe and Latin America. Over the long-term, it would not be surprising to see profits increase, given Telefonica's sizable market position. For investors interested in long-term international growth, Telefonica is worth a good 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. Aluminum Corp. of China is a great way to get involved in Chinese expansion. As of the latest quarterly earnings, a supply glut and higher prices pressured margins, which has resulted in some short-term pressure. For long-term investors seeking to gain exposure in Chinese growth, this could prove to be 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.
SEE: International Financial Reporting Standards: What You Need To Know
Suncor: Attractive Valuation
Shares of Suncor Energy are attractive from a valuation standpoint. The company has a forward P/E of 7.16 and is trading with a decent price to book ratio. The strengthening oil and gas sector and last year's acquisition of Petro Canada has provided investors a good reason to give this stock a second look.
For investors who want to diversify their portfolios by participating in the long-term growth some international 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.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!