As the U.S.
tries to sputter back to life, one important fact is increasingly
clear: any rebound is likely to be muted as the country wrestles
with persistently high unemployment and confidence-sapping budget
deficits. That's why it's more important than ever to make sure
your portfolio is also exposed to more dynamic corners of the
For many investors, that means an internationally-focused
exchange-traded fund (
that focuses on specific countries. But that approach may also mean
that you're buying some good companies as well as some bad ones.
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Instead, why not focus on stellar companies with proven track
records and strong exposure to global exports? For my money, these
four foreign stocks -- all of which have
trading here in the United States -- offer a solid blend of
geographic diversity, financial strength and respectable long-term
Honda Motor (
We all know that Honda's cars have a solid reputation here in the
U.S. But the Honda brand is also gaining a foothold in fast-growing
markets such as Brazil and China, along with other developing
markets, like the CIVETS countries I wrote about recently. [See:
Forget About BRIC: Buy These Emerging Economies
Honda has two great engineering strengths. Its engines are very
frugal, and they emit very low levels of pollutants. As fuel
economy regulations tighten, and as carbon emissions look to be
increasingly restricted in many countries, Honda should make
I think of Honda as a "rain or shine" stock. If the global economy
fares well in coming years, Honda should see sales rise in tandem
with the global auto market. And if the global economy slumps,
Honda's financial strength and lean operations should enable it to
operate profitably, even as rivals face distress. That's just what
happened in fiscal (March) 2009: most auto makers reported sharp
losses, while Honda saw
drop from $6 billion to $1.4 billion as sales fell more than -15%.
But the company proved that it can handle the tough times without
falling into the red and damaging its impressive
Shares of Honda trade for about 11 times projected 2012 profits.
Auto makers never garner very high
ratios, so I think this stock only has +20% to +25% upside during
the next year or so. But this is a great-long-term holding that
could appreciate at a moderate pace for many years to come.
Few companies can afford to commit more than $10 billion to a new
division, but that's just what Brazil's Vale is doing, according to
The Wall Street Journal
. Vale, which is already the world's largest producer of iron ore
and other minerals, aims to similarly dominate the market for crop
fertilizers. These disparate industries share several traits: they
require large amounts of capital to achieve global scale; they will
always be in demand as long as people need to eat, drive cars or
live in apartment buildings; and they traditionally generate solid
long-term returns when a company employs a healthy (but not too
high) amount of debt
. Vale carries $25 billion in debt, though that figure is quite
manageable in light of the company's roughly $12 billion in annual
(when averaged out over the last three years).
One of the charms of an expansion into fertilizers is that it
allows Vale to reduce its dependence on the highly cyclical
minerals market. And the more cyclical a business, the lower P/E
ratio its shares typically command. By diversifying its revenue and
profit sources, which lead to more stable growth, investors are
likely to bump up the projected P/E ratio. Shares now trade for
less than seven times next year's profits, but that forward
multiple could move up to 10 once the company's
efforts pay off.
Equally important, Vale is focused on markets around the globe, but
is especially dominant in its home region of Latin America, which
is seeing steady economic advances as Brazil, Chile and Colombia
ripen into truly first-world economies.
Central European Media (Nasdaq: CETV)
Even as investors have come to see Asia and Latin America as
compelling growth-oriented regions, they have largely bypassed
Eastern Europe and the countries that once comprised the Soviet
Union. To be sure, this whole region has been slow to develop, and
per capita consumer spending badly lags neighbors in Western
Europe. But progress has been considerable when you consider just
how moribund this region was 20 years ago.
Few remember that dynamic economies in Korea, Japan, Chile and
Brazil had underwhelmed international investors until they built up
an economic infrastructure to support a growing middle class.
Eastern Europe -- from the Baltic States in the North to Croatia in
the south -- are experiencing similar growing pains but are on a
clear path to more robust economies.
There are many ways and sectors to play this nascent trend, but I
prefer to focus on the consumer sector, which is increasingly
developing a taste for more sophisticated entertainment and
lifestyle choices. Central European Media is a solid
for consumers from Moscow to Bucharest. The company has invested
heavily to become a dominant player in advertising and TV
As noted, growth in these areas is still erratic, so the company's
sales are barely growing this year as ad rates slump. But investors
need to stay focused on the company's track record, when sales grew
at least +20% every year from 2002 to 2008. Even as the global
economy rebounds, growth in the years ahead may cool from that
pace. We're still a long way from economic parity between Eastern
and Western Europe, so ad rates have ample room to rise in Eastern
Europe in lockstep with still-rising consumer incomes.
But investors like to look at current quarterly trends and have
decided that shares are unlikely move higher in the near-term, so
they've moved elsewhere. This is a stock that moved toward the $120
mark in late 2007 and now hovers around $20. I don't expect shares
to re-visit those heights any time soon, but once investors
re-visit this region, the stock is still likely to be seen as a
logical play and shares could easily move back to the $30 or $40
mark. More importantly, Central European Media should be seen as a
long-term growth vehicle, and shares can be viewed as a
"Buy-and-Hold" global investment.
While the first three stocks profiled each represent a different
region, this last pick is a proxy for growth on all continents --
including Africa. In a nutshell, ABB is an awful lot like
General Electric (
without the volatile finance arm. As the world builds more power
plants to meet the demands of power-hungry middle classes in
emerging economies throughout Asia, Latin America and Africa, ABB
is often one of the lead contractors.
It's a remarkably stable, but unsexy
. ABB has earned $3.1 billion or $3.2 billion in net income in each
of the past three years. Profits are likely to be off a bit this
year due to the timing of some large project completions, but sales
and profits are expected to rebound at a nice clip next year.
Shares hit $30 a few years ago as power plant spending surged. The
global slowdown has pushed shares back to $20, but in the face of
robust long-term infrastructure needs, ABB should see sales and
profits rise steadily in coming years, helping shares to eventually
eclipse that $30 mark.
Action to Take -->
It's important to stay focused on U.S. stocks, many of which are
trading at very low valuations. But to guard against any prolonged
economic weakness here at home, your portfolio should also have
exposure to some of the more dynamic pockets of the global economy.
Any and all of these stocks should allow you to maximize returns
while cutting down some single-country risk.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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