How About Owning a Few Stocks Outside the U.S.?
Posted: October 01, 2019
If the U.S. stock market falls–whether because of the impeachment battle, the trade war with China, or slowing corporate profits–stocks outside the U.S. won’t necessarily do better.
Then again, they may.
Diversifying your stock portfolio by putting a slice of it in companies based outside the U.S. makes sense at almost any time. In my view, that’s truer now than usual.
If you agree, here are five stocks from five different countries you may want to consider.
Based in Tokyo, Japan, Sony (SNE) is a diversified consumer-electronics company. Among its lines of business are the Sony PlayStation, components for Apple’s iPhone, and the movie studio Sony Pictures.
Sony and Walt Disney Co. have just reached an agreement to continue cooperating in producing Spider-Man movies and related merchandise. That’s good news for both companies in my opinion. Sony is in the driver’s seat, and grossed $1.1 billion (a record for the company) on the latest installment, Spider-Man: Far From Home.
Sony shares are reasonably priced at just under 1.0 times revenue and 10 times recent earnings. The company won’t have a hit movie every year, but I like the fact that it has several profit engines.
From Lippstadt, Germany, comes Hella GmbH & Co. (HLKHF), which makes lighting and electronic components for cars and trucks. Its revenue growth is unimpressive, but cash flow and earnings have grown nicely.
Hella’s return on stockholders’ equity was 22% the past four quarters, which is luminous. At seven times earnings, the stock seems cheap to me.
In Canada, I think Magna International (MGA) looks attractive. It is the largest maker of auto parts in North America, and serves virtually every major car manufacturer worldwide.
Yes, the auto industry is heavily cyclical. And yes, quite a few economists think a recession in 2020 is likely. But companies like Magna are expanding its share of the automobile business–by enough, I think to compensate for a possibly shrinking pie.
Increasingly, companies like General Motors and Ford are assemblers, who put together sophisticated, complete systems made by the likes of Magna. In the past five years, Magna has grown its sales at close to 14% a year, and earnings at nearly 18%.
In France, I like Societe Bic SA (BICEY), the maker of Bic pens, razors and lighters. These are steady businesses, and given the sharp tension in the Middle East, the potential impeachment of a U.S. president, and the simmering trade dispute between the U.S. and China, a little steadiness is welcome.
Bic’s profits won’t bowl anyone over, but the company has made a profit in each of the past 15 years, including the worldwide recession year of 2008. The dividend yield of 5.7% is a definite plus, but there is some doubt whether it’s sustainable; Bic is paying out 83% of its profits in dividends.
YY Inc. (YY) is an online streaming company based in Guangzhou, China. It operates three platforms, one for music and entertainment, another for multiplayer games, and a third for chat with video.
YY’s revenue has grown at an annual clip of 45% the past five years, slowing to 23% in the past four quarters. It has $1.5 billion in cash, which would be enough to pay off all of its $750 million in debt if it chose.
The stock looks inexpensive at six times recent earnings and 10 times estimated earnings for next year.
Warning: These shares are extremely volatile. They took a 47% tumble in 2018. The online streaming world is highly competitive, and YY is unlikely to emerge unscathed if the Chinese economy–which already has slowed a little–slows further.
Beginning in 1998, I’ve written 15 columns on foreign stocks. The average 12-month return (11 months for the latest column) has been 14.8%, compared to 9.9% for the Standard & Poor’s 500 Index.
Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.
The results from my latest column on this subject, published last October, weren’t strong. My picks rose 7.5% verus 14.1% for the index. Losses on Jupai Holdings Ltd. (JP) and Schlumberger Ltd. (SLB) dragged down the return.
Disclosure: I own Sony and Societe Bic personally and for most clients. I own YY for one client.