Tags: Invest | Foreign | Stocks | cheap

Money Magazine: It’s Time to Invest in Low-Cost Foreign Stocks

By    |   Thursday, 26 July 2012 07:53 AM

Because of the European debt crisis and the slowdown in China’s economy, foreign stocks are trading at a discount to U.S. stocks, according to Money Magazine, and now might be a good time to invest overseas.

Foreign stocks have traded at a slight premium to U.S. stocks historically, as measured by a conservative gauge of price-to-earnings (P/E) ratios, but they are now trading at a 34 percent discount.

This discount is far cheaper than the discounts were during the Asian currency crisis of 1997 and the Latin American debt crisis in the 1980s. Interestingly, in the decades after those crises, stocks in those regions hammered U.S. stocks.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

However, while non-U.S. markets are cheap right now, there is no guarantee that they will not fall more.

If venturing into these markets, choose blue-chip stocks that have strong balance sheets and enough prospects to withstand more crises in the short term, but are attractively priced for the long run, Money Magazine stated.

In Europe, Heineken, Western Europe’s largest brewer, is attractive, according to the magazine. While the firm’s stock is down 17 percent in the past year, alcohol stocks appear to hold up during tough times. In addition, more than one-third of the sales are from emerging markets.

“Heineken offers stability, a great global footprint and plenty of room to grow," Camille Humphries-Lee, part of the team that oversees the MFS International Value Fund, told Money Magazine.

Another European stock to look at is U.K.-based wireless carrier Vodafone, which is trading at a P/E of 10.8, approximately 15 percent lower than the global telecom sector. While the firm has some exposure to Spain and Italy, it generates approximately a third of its sales from Eastern Europe, the Middle East, Africa and Asia.

“The firm’s wide geographic operations help in the current economic malaise,” Morningstar analyst Allan Nichols told Money Magazine.

The slowdown in China has created even larger investing opportunities in Japan, according to the magazine, because Japan is China’s biggest trade partner.

P/E ratios for stocks in Japan are 60 percent below their averages for the past 17 years, while Chinese stocks are down by only one-third.

Toyota is an attractive Japanese stock, said Rob Taylor, co-manager of Oakmark International, because 45 percent of the firm’s revenue is derived from emerging markets. In addition, Toyota expects sales in North America to increase 25 percent next year.

Another Japanese stock that appears steady is NTT DoCoMo, which controls half of Japan’s smartphone market. Smartphone usage tripled in Japan in 2011.

Interestingly, China’s biggest export market is Europe, Reuters reported.

Earlier this year, China vowed to continue investing in eurozone government debt and said it remained confident in the euro. However, the country’s central bank governor called on Europeans to provide more attractive investment products for China.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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Thursday, 26 July 2012 07:53 AM
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