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Today's Best Investments Are Far From Home

Today's Best Investments Are Far From Home


By    |   Thursday, 23 February 2017 07:19 PM

Investing can be a lot like archaeology. And not in the way it’s done in Indiana Jones movies with swashbuckling action. Rather, it’s mostly about carefully uncovering values and treasures that seem to have been lost to the sands of time.

But in one way right now, it is a lot like an old-time adventure. I’m talking about the part where you have to go to exotic locales to find the best treasures. Sure, you can buy and sell from the comfort of your own home, but some of the best investments today aren’t headquartered in the United States. Rather, they’re in more far-flung locations.

Most investors tend just to leave their capital at home. It’s called the home-country bias. And if you’re an American like I am, you’re leaving not only the adventure of international investing off the table, but the potentially bigger profits too.

Why invest internationally right now? Because that’s where the value is right now. Thanks to a strengthening US dollar—a trend that’s been going on for a few years now—relative values in foreign markets are better than they appear. What’s more, with all eyes on US stocks near all-time highs, beaten-down markets in more international locales look far more attractive.

Some of the best bargains today aren’t even that far from the U.S. border. With the election of Donald Trump, the Mexican Peso is acting like it belongs in a museum. It’s reached all-time lows in recent weeks. Yet, a weak currency means any Mexico-based company operating overseas will see a short-term currency boost.

While currency fluctuations tend to work themselves out over time, Mexican companies are faring well operationally at a time when it seems their currency is doomed. But it isn’t, and this short-term fear will pass in time.

That means astute investors should be buying stocks based out of Mexico. The risks appear high, which has sent prices low. But the only real risk in investing is overpaying. So today’s low prices are looking particularly attractive. And Mexico offers American investors a way to profit with numerous stocks trading on U.S. exchanges. That makes America Movil (AMX) one of the top foreign buys American investors can make comfortably today.

The telecom company operates out of Mexico, but has operations in numerous other Latin American countries as well. It trades at 15 times forward earnings, a notable discount to US stocks trading at an average of 22 times earnings and U.S. telecoms trading closer to 20 times earnings.

While US stocks are now up about 20 percent in the past year, American Movil is down 3 percent. That’s extremely well considering the weakness in the Mexican Peso should mean a decline of 10 to 15 percent alone. It’s clear that a telecom company is going to be resistant to not only the economic cycle, but political ones as well.

While the dividend is just over 2 percent, and thus isn’t as generous as American-based telecom companies, the perception of improving political relations with Mexico in the future could send more capital back into the country. So could improving economic conditions there as well.

Investors looking for something a bit further away—and even off the radar—might find it in an unlikely place: France. While President George W. Bush one tried to quip that the French no longer had a word for entrepreneur, things might soon be changing in the Fifth Republic.

That’s because it’s election season in France. The ruling socialist party has essentially evaporated into nothing. The leading candidates are right and center right. While France’s idea of a political right is still a bit to the American left, it stands to open up a wave of regulatory and tax reforms that could unleash a long-forgotten entrepreneurial spirit. Considering one of the largest economies in Europe has been at or near a recession for years, any change from that status quo could be huge.

But France is a tricky place to invest. Most French companies don’t trade on U.S. exchanges like America Movil. U.S. investors can buy the entire French market with an ETF, the iShares MSCI France ETF (EWQ) allows investors to buy a little of everything in one simple trade.

Besides the fact that France will soon be under new, market-oriented management, there’s also the fact that European stocks simply haven’t followed U.S. stocks to new highs. The Eurozone has had to deal with a series of crises from the housing market meltdown in 2008 to a series of debt woes from some of its more profligate spenders. Some problems have come and gone. But some issues, like Greece’s debt woes, have moved markets twice already.

While French stocks could rally on any new change in management, they could get a real kick in the pants if the current front-runner, Marnie Le Pen, wins out. She’s campaigned in part on having a “Frexit” vote to determine the country’s stake in the future of the Eurozone. If it’s anything like other recent elections like Brexit and Trump’s victory, this populist move means charting a new future without European Union bureaucracy having its say so (France will, somehow, have to get by on its existing bureaucracy).

Meanwhile, other international markets that have been out of favor in the past are starting to show signs of life. Russia’s stock market posted a great year following rising commodity prices and a new administration in Washington less likely to treat the country as though it was still in the throes of the Cold War. But I’ve been pounding the table on Russian stocks for the past two years. While that story isn’t over, the easy money has been made. The better bets today are in places like Mexico and France.

U.S. stocks are continuing to grind to new highs. That’s an increasingly risky bet, like being in an airplane with no more parachutes. But overlooked foreign stocks are starting to look a lot more like a true treasure in today’s markets. And with the ease of international investing today, you don’t have to pack a bag and jump in a plane to profit.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

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Investing can be a lot like archaeology. And not in the way it’s done in Indiana Jones movies with swashbuckling action. Rather, it’s mostly about carefully uncovering values and treasures that seem to have been lost to the sands of time.
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Thursday, 23 February 2017 07:19 PM
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