Let me be upfront, the world’s economies are generally not doing as well as the U.S. U.S. gross domestic product (GDP) continues to advance, continuing a pattern of several years. U.S. inflation is 1.6%, as measured by the core Personal Consumption Expenditure (PCE) index, which is the measure favored by the Federal Reserve.
And U.S. consumers are highly comfortable with the economy, their personal financial status and their willingness to spend. The Bloomberg Consumer Comfort index is near its high and has been significantly climbing since November 2016.
And this is for good reason. Jobs are ample and wages are expanding at 3% — close to double the rate of inflation.
And U.S. business leaders are increasingly more confident in their outlook. The Federal Reserve Bank of New York is tasked to survey the C-Suites of major businesses. One of their forward-looking surveys is now turning very positive after being hindered by trade negotiations. But with the United States-Mexico-Canada Agreement (USMCA) and phase one of the China Deal in progress, businesses are firmly back on the positive.
Busts Beyond the U.S.
Meanwhile, China’s economy is slowing — and it was slowing before the coronavirus outbreak. Japan remains in dismal conditions from systemic challenges.
In Europe, the near civil war between the United Kingdom and the European Commission is not going well. And political chaos in France joins these woes. There, people do not hold the government in high regard. France must now fully stamp out massive strikes. Then, Germany is in a political crisis as regional leaders balk at the centrist leadership of the Christian Democratic Union, the ruling party. And that nation is in a borderline recession with manufacturing at risk, particularly in its core auto industry.
And that’s not all. From Irish elections to Italian struggles and beyond, troubles are plentiful throughout the European market.
Nearly all of Latin America’s leading economies are in turmoil. African markets continue to face old challenges.
This is why despite my decades of experience in the global banking and investment markets, I maintain large allocations of U.S.-centric companies and U.S. bonds inside the model portfolios of Profitable Investing.
But while the globe isn’t calling with broad economic opportunities, there are several international stocks which I recommend and hold. Below are some of my favorites. But before I present them, note that when investing in foreign stocks, even those listed in the U.S. markets directly, via depository receipts or over-the-counter ordinary shares, there may be withholding tax risk depending on tax treaties.
Therefore, don’t buy and hold these stocks in a tax-free account. There are some provisions for allowances for withholding tax waivers and some for reclamation, but they are onerous. For taxable accounts, foreign taxes paid can mostly be applied as credits against U.S. tax liabilities.
International Stocks to Buy: BCE (BCE)
In the February issue of Profitable Investing I go through the entire fifth-generation (5G) wireless market. I break down the market into four sectors and examine all of the companies that I have in each of the sectors. These names are part of the market’s evolution.
In the carrier space, I recommend BCE (NYSE:BCE) which is the Canadian version of AT&T (NYSE:T) with its combination of communications and content. And while its wireless business contributes a smaller overall percentage of revenue, it is still quite significant. And BCE is important for the rollout of 5G in Canada. Revenue is progressing closer in line with Verizon (NYSE:VZ) at 3.1% over the past year. Its operating margins are strong at 22.9% to help make the return on equity running at 17.6%.
The stock yields an ample 5.1% which continues to rise annually. And the stock is reasonably valued at 3.3 times book and 2.4 times sales. It is a buy in a taxable account. Given that as a Canadian stock there is a risk of a change in withholding rules for U.S.-domiciled investors with qualified accounts.
Then for equipment, 5G requires new equipment like chips, pieces for handsets and antennae. Huawei and ZTE (OTCMKTS:ZTCOY) are Chinese-based companies on the forefront of 5G equipment. Politics are hindering both companies, not only in the United States, but in other markets with political ties with the U.S. But don’t worry. I have already recommended investing in two fierce competitors: Samsung Electronics (OTCMKTS:SSNLF) and Ericsson (NASDAQ:ERIC).
Ericsson remains hindered by its European roots, regulatory and labor challenges, and tax code issues. This is resulting in revenues — which should be increasing as it is one of the go-to alternatives to Huawei and ZTE — gaining only 2.7%. Its operating margin is borderline, and investments are leading to a current draw down on the return on equity. It has little debt which the company should tap to ramp up 5G product development.
But it is a value at only 1.3 times trailing sales and 3.8 times book. However, its dividend is not what it should be at a mere 1.1%. All of this puts the stock in the “niche” category as it has a lot of value and opportunity in a market where capital spending is ramping up. It is a buy in a taxable account given its foreign listing.
Samsung Electronics has been a favorite stock of mine for many years. It is one of South Korea’s leading technology companies and one of the globe’s leaders for everything from electronic devices to chips to all sorts of parts for nearly everything tech related. Not many devices exist around the globe without at least one component designed or built by Samsung.
And over the past ten years, the stock has delivered a return of almost 334% for U.S.-based investors. That streak extended for all of 2019 with a return of 57.6% — outperforming many peers in the U.S.
It does have a challenge in that prices for memory chips around the globe are lower, which dents the revenue numbers of recent. That said, they have been improving by nearly 10% for the past year. Operating margins are good for such a huge company at 12.1% and in turn, even with all of Samsung’s ongoing capital investments, the return on equity is good at 8.8%.
The dividend yields 2.3% which is good for a tech company. But the real attraction is that despite the stock’s price gains, it is a bargain at only 1.6 times sales and 1.5 times book. It is a buy in a taxable account. And note that some brokers may require a phone call to buy. Also note the stock’s ISIN number is #KR7005930003.
Consumer products companies have been going through a rough patch over the past few years. Consumer tastes are changing away from big packaged-food brands and costs are up. Many of the big-name companies have significantly disappointed shareholders.
One of the victors is Nestle (OTCMKTS:NSRGY) which is a Swiss-based company that offers a variety of products from food to pet goods. Revenues continue to rise, albeit at a lower rate of 2% over the trailing year. But that’s way better than many of its peers.
Cost controls are working with operating margins running at a whopping 15% which in turn feeds a return on equity of 17.4%.
The dividend is minor, but better than the average S&P 500 average at 2.3%. And the stock market is taking note of its success as the shares have delivered a return of 64.3% over the trailing three years.
This is well above the performance of the S&P 500 and should be bought now in a taxable account.
Pembina Pipeline (PBA)
Canada is a great market for resources. With the nation chock-filled with minerals, the market has plenty of great companies. The petroleum market is challenging in the U.S. given the rise of anti-energy sentiment impacting allocations to the segment.
But in Canada, the liberal-led government is very focused on getting more oil and gas out of the ground and on pipelines for export.
Pembina Pipeline (NYSE:PBA) is a Canadian-based company which is benefiting from the Canadian government’s push to facilitate greater pipeline capacity for export of LNG and other petroleum products. And with the government focus, the stock has been firmly on the rise. Buy PBA stock in a taxable account given its foreign status. And its dividend is yielding a nice 4.8% to boot.
Then there’s gold. And for gold, I continue to recommend my first and only gold investment in Franco-Nevada (NYSE:FNV). Canada’s FNV has been rallying through the market’s reactions to the coronavirus from china.
But beyond the virus, gold is doing better. Lower U.S. interest rates are reducing the opportunity costs of holding gold, and the generally softer U.S. dollar aids gold priced in dollars. And market concerns or chaos just add to demand now and again, like with the virus.
Franco-Nevada doesn’t mine gold. It merely collects royalties from gold producers or from gold production interests. Gold goes up — FNV makes money. Gold drops — FNV still gets paid. And unlike regular gold or gold exchange-traded funds like the SPDR Gold Shares (NYSEARCA:GLD), Franco-Nevada pays a dividend yielding 0.9% which is low, but better than paying storage or expense fees on other gold investments.
And since June of last year, it has generated a total return of 49.1% which is 2.75 times the return of the GLD ETF. Again, buy shares in a taxable account.
Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps — and into safe, top-performing income investments. Neil’s new income program is a cash-generating machine … one that can help you collect $208 every day the market’s open. Neil does not have any holdings in the securities mentioned above.