Diversification across industries helps investors mitigate risk and create a well-balanced portfolio. And at the same time, its important to diversify across asset classes and countries. Therefore, taking a look at international stocks is never a bad idea.
In particular, investors can consider exposure to stocks from emerging Asia. With higher GDP growth in several countries coupled with robust corporate earnings growth, there is scope for higher returns.
Overall, let’s discuss four international stocks that are worth considering for the next three to five years. They are:
So with all of that in mind, let’s dive deep into the following international stocks.
Hot International Stocks: Alibaba Group Holding (BABA)
Among international stocks, BABA stock is a must-hold in the portfolio. The company is on a high growth trajectory, and I expect the stock to move higher as cash flows swells. In fact, to put things into perspective, Alibaba’s earnings growth is likely at 18% annually over the next five years.
That said, there are multiple triggers for growth. The company’s core commerce business in China is a cash flow machine. In addition, Alibaba is making inroads in Southeast Asia, which is another big e-commerce market.
Furthermore, the company’s cloud computing business has also been growing at a scorching pace. The EBITDA margin is also likely to turn positive in the coming quarters, and that provides BABA stock with another upside trigger.
In a recent news, Ant Group is planning a $200 billion initial public offering. Alibaba holds 33% stake in the financial technology arm, so the IPO would result in value unlocking.
It’s also worth noting that for the last financial year, Alibaba reported free cash flow of $18.5 billion. This gives the company ample financial headroom for organic and inorganic growth. And as FCF continues to grow, BABA stock can become more attractive in the coming years from a dividend perspective.
Nio stock is almost back from dead with a surge of 315% in the last six months. There are fundamental reasons for this rally, and I believe that Nio has an exciting future. Investors can therefore consider the stock on any intermediate correction.
The first big trigger for Nio stock was the capital infusion. As of June 2020, the company has received 4.8 billion yuan from investors. In turn, the cash infusion provides the company with headroom for growth. In addition, the cost cutting measures will translate into lower cash burn in the coming quarters.
Moreover, Nio has also surged with renewed growth in delivery volumes. For the second quarter of 2020, the company delivered 10,331 vehicles, which exceeded the quarterly guidance. In fact, the company recorded 3,740 vehicle deliveries during June 2020 — a new monthly record.
So with emphasis on electric vehicles in China, Nio is well-positioned to continue reporting higher delivery volumes. And once cash flows turn positive, the stock is likely to skyrocket. Tesla (NASDAQ:TSLA) is a good example of the potential stock momentum once delivery volumes surge.
Overall, with new model launches and possible international expansion, Nio is in a great spot for growth and shareholder value creation.
Hot International Stocks: Equinor (EQNR)
The oil and gas sector has been in focus with the novel coronavirus-triggered meltdown in energy prices. Over the long-term, though, the outlook for fundamentally strong oil companies remains positive. Therefore, I see the current headwinds as a good opportunity to accumulate some stocks. And with that in mind, EQNR stock is worth considering.
Equinor is a Norwegian company with asset focus in the Norwegian continental shelf. One of the reasons to be bullish on the company is the commencement of oil production in Johan Sverdrup asset. The asset is the third largest oil field in Norway ever. Phase 1 of production is likely at 470,000 barrels per day. In Phase 2, this production will increase to 690,000 barrels per day. And with a full-field break-even below $20 per barrel, the asset in attractive in a low oil price environment.
Of course, Equinor has other attractive assets with 6 billion barrels of proved oil and gas reserves as of fiscal year 2019. That said, a strong balance sheet and healthy cash flows are among the reasons to consider exposure to the stock.
EQNR stock is also attractive for dividend investors. The company currently has an attractive dividend yield of 2.48%, and there is visibility for dividend growth in the coming years. And as oil gradually trends higher, low break-even oil price projects will be cash flow machines.
HDFC Bank (HDB)
India’s GDP growth is likely to remain muted as the coronavirus impacts the economy. However, the country can grow at a faster pace compared to China in the coming decade for one reason: banking.
India’s banking sector has immense growth potential with significant under penetration in the semi-urban and rural areas. And as the largest private bank, HDFC Bank is well-positioned to capitalize on the long-term growth opportunity. Therefore, the non-performing asset crisis among public sector banks in India provides an opportunity for private players to accelerate growth and consolidation.
Its also worth noting that HDB stock has been an under performer in 2020, down more than 23%. That said, however, I see this correction as a good opportunity to accumulate the banking stock for the long-term.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.