Don’t Be a Stranger to Non-U.S. Stocks
Posted: February 07, 2023
January 30, 2023 — (Maple Hill Syndicate) – Most economists predict a recession for the U.S. in 2023. No one is good at foretelling the future, but the recession threat may be one reason to consider adding some non-U.S. stocks to your portfolio.
Here are five foreign stocks I like currently. All of them trade in the U.S., either through direct listings or through American Depositary Receipts (ADRs).
In Japan, Itochu Corp. (ITOCF) deserves consideration. It’s an import-export company that handles trade in textiles, machinery and many other industries. In the past decade, it has grown its revenue at about a 12% annual clip, and profits at about an 11% clip.
Warren Buffett, nicknamed the Oracle of Omaha, announced in August 2020 that his company, Berkshire Hathaway, had bought a 5% stake in Itochu and its four leading competitors. Berkshire increased its stake a bit later that year. Typically, Buffett bought cheap, and he has already made a handsome profit.
By my lights, the stock is still attractively cheap, selling for less than eight times earnings and 0.5 times revenue.
In the Netherlands, I like Koninklijke Ahold Delhaize NV (ADRNY), often known as Ahold. It’s the largest supermarket chain in the Netherlands and Belgium, and the fourth largest in the U.S. Its U.S. brands include Stop & Shop, Hanover and Food Lion. It has more than 7,000 stores in 11 countries.
In the past year, Ahold shares have dropped about 10%, even as sales and earnings rose. The stock seems attractively priced to me at 11 times earnings and 0.32 times sales.
And, ah, the dividend. The yield is 3.5% and the company isn’t straining to pay it, as it pays out less than half of profits in dividends. The dividend growth rate the past five years is about 12%.
In France, I favor Total Energies SE. The plural of “energy” is deliberate. Total is the largest oil company in France but it also is serious about solar and wind power, with large-scale projects in both.
As with Ahold, the dividend is appealing, and the portion of profits paid out in dividends is moderate. Total sports a dividend yield of 4.5%. However, the dividend growth rate the past five years is snail-like at 1.5%.
Following years of stock-price stagnation, Total shares have popped 11% in the past year, while the U.S. stock market was down.
A small-cap stock that interests me is Aurubis AG, based in Germany. It’s a copper recycler that has wildly variable earnings from year to year. Lately, profits have been strong, but investors don’t trust the good times to last. Hence, the stock sells for only six times earnings.
Demand for copper is highly sensitive to the economy, so whether you want this stock depends partly on your economic outlook. The consensus of economists is that real economic growth in Europe will be only a fraction of a percent.
My guess is that Europe will do a little better than the consensus expects, and that Aurubis will have a good year.
Xi Jinping now rules China as an absolute autocrat. In recent years he has become more hostile to the West and more anti-capitalist. I worry about expropriation, and probably will not invest in China during 2023.
If the political risk troubles you less than it bothers me, a number of Chinese stocks are attractively valued. One is China Yongda Automobiles Services Holdings Ltd. (CYYHF). It sells luxury cars such as BMW, Bentley, and Jaguar. It also rents cars, services them and finances them.
China Yongda has been consistently profitable and often highly so. But there is regulatory risk, as the Chinese government favors cars manufactured in China and may view luxury cars as symbols of capitalist elites.
This is the 19th column I’ve written recommending a few non-U.S. stocks The average one-year return for the previous 18 columns was 14.8%, compared to 13.6% for the Standard & Poor’s 500 Total Return Index over the same periods. That’s a slim lead, but a lead nonetheless.
International investing carries risks. Disclosure standards are generally looser abroad than in the U.S., regulation is often lighter, economic swings are often wider, and currency fluctuations can sometimes wipe out gains.
Also, U.S. investors probably know U.S. companies better than they know foreign companies.
However, there’s also one big advantage. By considering a wider range of potential investments, you may stumble on some great companies that other people overlook.
Disclosure: I own Total Energies personally and for most of my clients.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at firstname.lastname@example.org.