China’s disciplined approach in isolating and treating those infected with the novel coronavirus allowed the country to re-open sooner. The rest of the world is following China’s lead. As the world economy restarts, international stocks will fare the best. Its geographic diversity will work in its favor as strong growth in re-opened countries offsets a temporary shutdown in other places.
Savvy investors may build a geographically diversified portfolio, but that is not easy. There are currency exchange rate risks to consider. So, buying worldwide conglomerates may pay off in the long-run. Plus, investors get the benefit of spreading out risks.
There are seven international stocks to buy as the world economy restarts:
- The Unilever Group (NYSE:UL)
- The Procter & Gamble Company (NYSE:PG)
- Alibaba (NYSE:BABA)
- Coca-Cola Company (NYSE:KO)
- Toyota Motor (NYSE:TM)
- Kimberly-Clark (NYSE:KMB)
- AstraZeneca (NYSE:AZN)
Together, these international stocks give investors exposure to a wide variety of sectors. Consumer goods, e-commerce, automotive, and drug manufacturing all have their growth potential. Plus, a re-start will accelerate the near-term growth of companies in their respective markets.
Unilever Group (UL)
First up on this list of international stocks is Unilever. The Unilever Group is in the news after joining other firms in boycotting ad spending on Facebook (NASDAQ:FB) for the rest of the year. This is an unfortunate decision and does signal some risks in holding UL stock. The company reported flat sales growth in the first quarter due to the stay-at-home order. But stockpiling last quarter and the re-opening should lift results.
In Q1, Unilever signaled its confidence in its cash flow growth by keeping its dividend levels. As consumers return to stores, Unilever’s sales should recover. Still, the company must adjust to the ever-lasting impact of people staying at home. So, instead of relying on ice cream and food that restaurants and cafes buy, the company needs to pivot.
Unilever stock has a strong overall rating. As a bonus, the stock offers a good dividend for income investors.
Increasing its focus on laundry detergents, hand sanitizers, and soap products should give profit margins a lift. In the near-term, expect a better entry point approaching. Analysts have a $48.42 price target (according to Tipranks). And if more restaurants are open, Unilever’s sales should bounce back in the next quarter.
The Procter & Gamble Company (PG)
Procter & Gamble’s priority of ensuring the health and safety of everyone around the world already makes the company a recession-proof holding. Looking ahead, family demands for maintaining health, hygiene, and cleaning will only grow. The devastating virulence of the coronavirus will only increase such needs.
In the first quarter, P&G increased its dividend by 6% to about 79 cents a share. And as consumers choose their brands first, sales will increase as people slowly return to their normal lives. From fiscal 2012 to Fiscal 2016, P&G created $10 billion worth of growth and value. It will repeat that feat from the fiscal year 2017 to 2021.
By disrupting the market, the company comes out ahead in a variety of sectors. This includes beauty, grooming, family care, and health care.
According to Stock Rover, PG stock is worth $160.53. It scores well on quality.
Expect P&G to expand its operating margin as the economic rebound unfolds. Its net margin could exceed that of the industry next.
Alibaba still trades at a discount. The strong growth in e-commerce every quarter suggests that markets continue to underestimate their potential. With China leading the economy’s reopening, Alibaba’s digital economy business will expand. In the fourth quarter, Alibaba’s digital economy gross merchant volume exceeded $1 trillion (slide 3). It now has 960 million global annual active customers (AAC).
Investors may forecast Alibaba’s revenue growing by at least 17% or higher in the next five years annually. With the following input, Alibaba stock has a fair value of $265.42.
At 780 million China and 180 million international AAC, Alibaba is in a strong position to grow its market share. Plus, consumers will spend more time buying things online. Furthermore, the e-commerce giant has a chance to increase its food and grocery business as customers grow accustomed to buying these goods online.
In the cloud computing space, Alibaba Cloud continues to benefit from the increasing demand for video content consumption. Remote working and learning also lifted demand.
At a price-to-earnings (P/E) below 30 times, BABA stock has an excellent growth profile against its deep value.
Coca-Cola Company (KO)
Just as Unilever cut its ad spending, Coca-Cola said it would do the same. The pop drink supplier is pausing all social media ad spending for July. Again, this suggests that the company’s revenue growth is slowing and that its ads are not effective in reversing that decline.
KO stock lost nearly one-third of its value in the last five years:
Chart courtesy of Stock Rover
According to Tipranks, analysts have a $51.40 price target. At an 8% discount rate, a 5-year discounted cash flow model would arrive at a similar fair value.
The economy’s restart should put KO stock in firmer territory as it cuts unnecessary spending. And as sales recover, profits will expand at a better pace than ever. Collectively, beverage companies “spent over a billion dollars to advertise sugary drinks and energy drinks in 2018.” So, strong brand recognition should lead to continued double-digit sales of Coca-Cola products despite the ad spending freeze.
At a price-to-earnings below 20 times, Coca-Cola shares are too cheap to ignore, especially as international markets reopen.
Toyota Motor (TM)
Automotive companies faced slumping sales at the height of the pandemic-driven lockdown. The easing should lead to a rebound in sales. International stocks like Toyota Motor not only trade at favorable valuations of around 10 times earnings, but have a good performance record.
Toyota makes reliable cars that require minimal maintenance. Those who have to go to work and want to avoid public transportation will want to buy a Toyota.
Still, Toyota’s sales rebound will not happen until after July at the earliest. The company forecasts a 10% drop in production volume in July. This is a solid improvement from the 40% decrease in June. As global demand recovers, domestic production will bounce back. Toyota forecasts sales will recover to last year’s levels by the end of 2020.
In a long-term trading range of $130 – $145, Kimberly-Clark stock is ready to break out to the upside. In the first quarter, the company posted non-GAAP earnings of $2.13 a share. Revenue grew 8.2% from last year.
KMB stock held up well because of the crazed demand for toilet paper in the last quarter. Looking ahead, the company has a few priorities that will sustain its growth. In addition to protecting the health and safety of its employees and customers, it will manage its global supply chain and manage the business for volatility.
For instance, CEO Mike Hsu said: “Like other companies, we haven’t significantly pared back our SKU count, and that we’ve done that in partnership with our customers, who have been very supportive along that journey. And that has increased our theoretical capacity because we have fewer changeovers and less complexity in the plants.”
By running efficiently, KMB shares could bounce higher as demand patterns recover in places like Asia, Korea, Australia, and New Zealand.
Last on this list of international stocks is AstraZeneca. AstraZeneca is not only an international stock idea but it is also a coronavirus vaccine play. The company signed a $127 million deal to produce an experimental vaccine for the Brazilian government. The country will receive material to produce 30.4 million doses later this year. The deal will bring 100 million vaccines. This accounts for nearly half of Brazil’s residents. AstraZeneca will transfer the technology if the vaccine works.
Brazil is one of the hardest-hit countries of the virus and has more than a million confirmed cases.
The company’s AZD1222 vaccine is a co-development with the University of Oxford. Italy’s pharma giant, Catalent, will manufacture the drug starting in August 2020.
AstraZeneca shared its data on three cancer studies. Tagrisso, which treats adjuvant lung cancer, is in Phase III. Imfinzi is in Phase III and treats extensive-stage small cell lung cancer. And Enhertu is in Phase II trials in gastric, lung, and colorectal cancers.
On Stock Rover, AZN stock has an 87/100 score on quality. Its gross margin is 49.9% and may potentially rise as the economy re-opens.
As of this writing, the author did not hold a position in any of the aforementioned securities.