The U.S. stock market continues to be the best of the major markets around the globe. The S&P 500 is up by 5.1% year to date excluding dividends. Top indices in Europe and the Asia-Pacific region are down for the year — making it very clear they are not in a bull market. But there are still several specific international stocks which I recommend and hold inside the model portfolios of my Profitable Investing.
Total Return: S&P 500 Index, FTSE 100 Index and Nikkei Index
Here are some of my favorites. Now before I present them, note that when investing in foreign stocks — even those listed in the U.S. markets either directly or via depositary receipts or over-the-counter ordinary shares — there may be withholding tax risk depending on tax treaties.
Therefore, none should be bought and held in a tax-free account. There are some provisions for allowances for withholding tax waivers and some for reclamation, but they can be onerous. But for taxable accounts, foreign taxes paid can mostly be applied as credits against U.S. tax liabilities. Plus, most brokerages and trustees will help handle this process.
These are six of my favorite international stocks:
- BCE (NYSE:BCE)
- Ericsson (NASDAQ:ERIC)
- Samsung (OTCMKTS:SSNLF)
- Nestle (OTCMKTS:NSRGY)
- Pembina Pipeline (NYSE:PBA)
- Franco-Nevada (NYSE:FNV)
International Stocks: BCE (BCE)
Earlier this year in an issue of Profitable Investing, I went through the entire fifth-generation wireless market. Then, I broke down the market into four sectors and analyzed all of the companies that I have in each of the sectors.
In the carrier space, I recommend 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 than its data and hard-wired connections, it is still quite significant. And it is important for the rollout and evolution of 5G in Canada.
Revenue continues to advance at a dependable rate currently running at 2.1% over the past year. Operating margin is good at 23.3% to help make the return on equity running at 14.9%.
BCE (BCE) Stock Price
The stock yields an ample 5.8% which continues to rise. And the stock is reasonably valued at 3.07 times book value and 2.2 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.
The rollout of 5G is requiring lots of new equipment. Huawei and ZTE (OTCMKTS:ZTCOY) are Chinese-based companies on the forefront of equipment and device production for 5G. But politics — both in the U.S. and in other markets — is hindering these companies.
But not to worry. I have already found two fierce competitors with Samsung Electronics and Ericsson.
Ericsson had been hindered by its European roots — complete with regulations, labor challenges and tax code issues as well. But the turnaround is working. This is resulting in revenues (which should be gaining ever further as it is one of the go-to alternatives to Huawei and ZTE) gaining by 7.8%.
Operating margin is getting better at 4.8%, and investments are leading to a current draw-down on the return on equity. It has little debt which could be tapped to ramp up 5G product development.
Ericsson (ERIC) Stock Price
But it is a value at only 1.6 times trailing sales and 4.7 times book. But its dividend is not what it should be at a mere 0.7%. All of this puts the stock as a turnaround play for 5G as it has a lot of value and opportunity.
ERIC stock is a buy in a taxable account given its foreign listing.
International Stocks: Samsung (SSNLF)
Samsung Electronics has been a favorite company and stock of mine for many years. It is one of South Korea’s leading technology companies and one of the globe’s biggest companies for everything from electronic devices to chips. Not many devices exist around the globe without at least one component designed or built by Samsung.
Samsung Electronics (SSNLF) Total Return in USD
And over the past 10 years, the stock has delivered a return of 332% for U.S.-based investors. And that streak extended for all of 2019 through to date with a return of 47.4% — outperforming many peers in the U.S. as well as the S&P 500.
It has faced some challenge in that prices for memory chips around the globe are lower, which dents the revenue numbers of recent quarters. That said, overall revenues over the past ten years continue to expand. Operating margins are good for such a huge company at 12.1% and in turn, even with all of the ongoing capital investments, the return on equity is good at 7.8%.
The dividend yields 2.4% which is good for technology. But the real attraction is that despite the stock’s price gains – it is a bargain at only 1.50 times sales and 1.32 times book. It is a buy in a taxable account.
Consumer products companies have been going through a very rough patch over the past few years. Consumer tastes are changing and costs are up from input to labor to transportation. Many of the big-name companies have significantly disappointed shareholders — or worse.
But that has completely changed during the novel coronavirus and the resulting stay-at-home trends. Now, households around the planet are demanding more consumer products from snacks to pet foods.
One of the victors is Nestle, 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 1.2%, over the trailing year. But that’s way better than many of its peers.
And cost controls are working with operating margins running at a whopping 17.3% which in turn feeds a return on equity of 28.7%.
The dividend is minor, but better than the average for the S&P 500 in the U.S. at 2.4%. And as noted, the stock market is taking notes of its success as the shares have delivered a return of 81.7% over the trailing five years — outpacing the S&P 500.
Nestle (NSRGY) Total Return
This is a premier consumer and pet product company and should be bought now in a taxable account.
International Stocks: Pembina Pipeline (PBA)
Canada is a great market for resources. With the nation filled with minerals and energy resources, 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 continuing to get more oil and gas out of the ground and on pipelines for export for economic development and jobs.
Pembina Pipeline is a Canada-based company which is benefitting from the Canadian government’s push to facilitate greater pipeline capacity for export of liquified natural gas and other petroleum products. And with the government focus, the stock has been firmly on the rise with the past trailing 10 year return for U.S. investors running at 117.7% for an annual equivalent of 8.2%.
Pembina Pipeline (PBA) Total Return
It is a buy in a taxable account given its foreign status. And its dividend is yielding a nice 7.1% to boot.
I couldn’t forget gold in this list of international stocks! And for gold, I continue to recommend my first and only gold investment in Franco-Nevada. It has been strongly rallying through the market’s reactions to the all of the Covid-19 economic and market fallout.
Franco-Nevada (FNV) Stock Price
But beyond the virus, gold is doing better due to two primary things. Lower U.S. interest rates reduce the opportunity costs of holding gold, and the generally softer U.S. dollar aids gold priced in dollars. And market concerns or chaos just adds to demand now and again like with the virus fallout.
Franco-Nevada doesn’t mine gold, but merely collects royalties from gold producers or from gold production interests. Gold goes up, it gets paid more. Gold drops, it still gets paid.
And unlike regular gold or gold ETFs like the SPDR Gold Shares (NYSEARCA:GLD), Franco-Nevada pays a dividend yielding 0.69% which is low, but better than paying storage or expense fees on other gold investments.
And since June of last year to date when I first recommended it, it has generated a total return of 78.9% which is 2.09 times the return of the GLD ETF. Again, it should be bought 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.