While it has by no means been producing gangbusters growth, the
American economy has been outperforming its developed market peers
in recent years, and has been quite stable compared to those of
many emerging markets. Take that relative outperformance, throw in
an enormous amount of quantitative easing from the Federal Reserve,
and you get a U.S. stock market that has been one of the best
places to invest since early 2009.
I still believe the U.S. market is a good place for long-term
investors to be. But, with the strong performance of American
equities the last few years, and the hits and struggles that other
parts of the world have endured, international stock valuations are
looking pretty darned good these days. Sure, these markets come
with some well known risks -- China has its slowdown in growth and
potential housing bubble; South America and the Middle East have
ongoing political strife; and Europe's economy is barely producing
any growth, with the continent's debt woes still lingering.
But in many cases, it looks like investors are overreacting to
these issues -- just as they did to the U.S.'s problems back in
late 2008 and early 2009. Back then, many investors let fear drive
them out of stocks, and they missed out on a good portion, or in
some cases all, of some tremendous gains. I think investors would
be wise not to let the same kind of fears sway them from investing
in cheap shares of good companies in international markets right
now. My Guru Strategies, each of which is based on the approach of
a different investing great, are currently finding a number of
fundamentally sound stocks abroad. Here are a handful that have
caught their eye. As always, keep in mind that you should invest in
stocks like these within the context of a broader, diversified
Nippon Telegraph and Telephone Corporation (
This Japanese telecom giant ($68 billion market cap) has raked in
nearly $110 billion in sales over the past year. While Japanese
stocks have surged under Prime Minister Shinzo Abe's QE-driven
"Abenomics" policies, my James O'Shaughnessy-based value model
thinks NTT has more room to run. It likes the firm's size, strong
cash flow ($10.15 per share, more than six times the market mean),
and 3.5% dividend yield.
Royal Dutch Shell PLC (
This Netherlands-based energy power ($205 billion market cap) has
taken in close to half a trillion dollars in sales over the past 12
months, despite the recession in its home continent of Europe.
Shell is a favorite of my O'Shaughnessy-based value model,
thanks to its size, $13.45 in cash flow per share, and stellar 5.7%
dividend yield. Shell also gets high marks from my Peter
Lynch-based model. Lynch famously used the P/E-to-Growth ratio to
find bargain-priced growth stocks, and when we divide Shell's 8.4
price/earnings ratio by the sum of its dividend yield and long-term
growth rate (8%, using an average of the three-, four-, and
five-year EPS growth rates), we get a PEG of 0.61, which easily
comes in under this model's 1.0 upper limit.
Lynch also liked conservatively financed firms, and the model I
base on his writings targets companies with debt/equity ratios less
than 80%. Shell's D/E is 18.6%, another good sign.
Accenture PLC (
Ireland-based Accenture provides management consulting, technology,
and outsourcing services. It has done a good job of weathering the
European recession in part thanks to its global reach, having upped
earnings per share in each of the past three years.
Accenture ($50 billion market cap) is a favorite of my Warren
Buffett-based model. It looks for firms with lengthy histories of
earnings growth, manageable debt, and high returns on equity (which
is a sign of the "durable competitive advantage" Buffett is known
to seek). Accenture delivers on all fronts. Its EPS have dipped in
only one year of the past decade; it has no long-term debt; and its
10-year average ROE is an impressive 48%. Accenture also gets
strong interest from my Lynch-based model. Its 15.2 P/E, 13%
long-term growth rate, and 2.2% dividend make for a yield-adjusted
PEG of 0.97, just making the grade.
Telecom Argentina S.A. (
This Argentine firm ($2.9 billion market cap), which also offers
cellular services in Paraguay, is majority-owned by Nortel
Inversora SA (which in turn is majority-owned by Telecom Italia).
Worries about political turmoil and inflation in Argentina have
kept its shares down for the past few years. But recent elections
for the country, speculation that much-maligned Telecom Italia may
be selling a chunk of its stake, and a pretty solid second quarter
for the company have pushed TEO's shares up more than 20% in the
Four of my models think they're still too cheap. My Lynch-based
approach likes the stock's 7.7 P/E and 23% long-term growth rate,
which make for a 0.34 PEG ratio. My O'Shaughnessy-based growth
model likes that it has upped EPS in each of the past five years,
has a 0.69 price/sales ratio, and has a solid 83 relative strength.
My Kenneth Fisher-inspired model also likes that price/sales ratio,
as well as TEO's 13% three-year average net profit margins and
20.6% long-term inflation-adjusted growth rate. Finally, my David
Dreman-based contrarian approach likes that TEO's P/E and
price/cash flow ratios are both in the cheapest 20% of the market,
and that it has a 28.6% return on equity and 4.7% dividend.
CNOOC Limited (
Shares of this $83-billion-market-cap oil and natural gas
operations giant (the Chinese National Offshore Oil Corporation)
have lagged this year amid the China slowdown fears. But its
fundamentals are strong. My Buffett-based model likes that its EPS
have declined just twice in the past decade; that it has enough
annual earnings ($10.8 billion) that it could pay off all of its
debt ($13.7 billion) in less than two years, if need be; and that
it has a 25.9% average ROE over the past decade. My Lynch-based
model likes its 17% long-term growth rate, 8.2 P/E, and 3.1%
dividend, which make for a yield-adjusted PEG of just 0.41. And my
Dreman-based model likes that CNOOC's P/E and price/cash flow
ratios are in the market's bottom 20%, and that the firm has a
21.6% ROE and 35% pretax profit margins.
I'm long TEO, NTT, CEO, ACN, and RDS.A.