Scene in Paris, France, before the 2024 Olympics. France is one of several countries whose stock … More
This year through March 21, stocks were up 9% in France, 15% in Germany, and 18% in Hong Kong.
In the U.S. stocks were down 3%.
A little international diversification might be a good idea, especially with U.S. stocks currently on the expensive side. Yet many American investors have 100% of their portfolios in U.S.-based companies.
If you want a few international stocks in your portfolio, here are five that I think are worthy of consideration.
Hannover Rueck
In Germany, I like Hannover Rueck SE (HVRRY) a reinsurance company (an insurer to insurers) based in Hannover. It gets about 18% of its revenue in Europe, 16% in Britain, 42% in North America, and 24% in the rest of the world.
Hannover Rueck has notched a profit in 22 of the past 23 years. It had a modest loss in 2008, the height of the great financial crisis. The stock seems moderately valued to me, selling for 14 times recent earnings, and is up 16% this year.
Hikari Tsushin
In Japan, I’m drawn to Hikari Tsushin Inc. (HKTGF), which sells networking and automation products to small and medium-sized businesses. For example, it offers routers, LED lighting and water coolers.
It has grown its earnings at a 22% annual clip over the past decade, though revenue growth was considerably slower. The stock sells for only 11 times recent earnings. It’s up about 6% this year.
Total Energies
In France, I’m partial to Total Energies SE (TTE). It’s France’s biggest oil company and is also active in solar and wind energy. The stock weighs in at less than 10 times earnings, 0.8 times revenue and 1.2 times book value (corporate net worth per share), even though it’s up 15% year-to-date.
The company produces or sells energy in 120 countries. It has attracted both praise and criticism for its close relationship with the French government, and for dealing with Russia and China.
JD.com
I’m almost entirely out of China these days, mostly because I dislike the governing philosophy and methods of President Xi Jinping. I have no Chinese stocks for most clients, and only one small holding in my hedge fund.
Nonetheless, many Chinese stocks are cheap at the moment. One is JD.com Inc. (JD), which is one of the three largest e-commerce companies in China. (Alibaba is the largest; JD.com and Pinduoduo fight for second.) JD.com has increased its sales at a 34% annual pace over the past decade.
The stock, up 23% this year, still sells for only 11 times earnings.
Taiwan Semiconductor
What company manufactures semiconductor chips for Apple, Nvidia and Qualcomm? The answer is Taiwan Semiconductor Manufacturing Co. (TSM), universally recognized as the world’s most advanced chip maker.
Taiwan Semiconductor boasts a net profit margin of about 40%, a return on equity of more than 30%, and five-year earnings growth exceeding 25%. If a U.S. company posted numbers like that, I believe it would be priced in the stratosphere.
Taiwan Semiconductor sells for 25 times recent earnings, not cheap but not terribly expensive either. That’s because the threat of a Chinese invasion of Taiwan hangs over its head like a sword of Damocles.
The Risks
Foreign stocks are riskier than American ones in some respects. Most countries have accounting standards less rigorous than those in the U.S., and less vigorous enforcement of those standards. Many countries have economic swings wider than those in America. In some countries, expropriation is a risk.
Also, investment gains can sometimes be wiped out by currency fluctuations. If you make, say, a 10% gain in Euros, but the dollar appreciates 11% against the Euro, you have a loss.
The Record
This is the 20th column I’ve written since 1998 recommending some non-U.S. stocks. The average one-year return on the recommendations in my previous 19 columns has been 14.4%. That edges out the average return on the Standard & Poor’s 500 Total Return Index for the same periods, at 14.2%.
My most recent column on the subject (January 2023) pulled down my batting average. My picks advanced 7.6% in 12 months, while the S&P 500 roared ahead 24.6%. My best pick was Itochu Corp (ITOCF) of Japan, up 40%. Worst was Aurubis AG (AIAGY) of Germany, down 28%.
Of the 19 columns, 15 were profitable but only nine beat the S&P 500.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Disclosure: I own Total Energies and Taiwan Semiconductor personally and for most of my clients.
