Undoubtedly, the U.S. stock market remains the crown jewel most investors focus on. The returns U.S. stocks have provided in recent years have outpaced emerging markets by a wide margin. However, there are reasons why investors may want to seek out the best foreign stocks right now.
To start, this valuation gap is wider than it’s been in some time. Various high-quality foreign stocks are now trading at significant valuation discounts to U.S. peers. Additionally, some might argue that these companies are in higher-growth regions of the world, with U.S. growth slowing in recent decades.
This backdrop appears to be perfect for value investors seeking reasonably-valued opportunities. However, finding foreign stocks that are both stable (geopolitical concerns have ratcheted up of late) and consistent in terms of their long-term growth prospects isn’t as easy.
In this article, I’m going to highlight seven top foreign stocks I think are worth taking a look at. These companies can provide investors with excellent geographic diversification for those who want to expand their portfolios outside of the U.S. Indeed, “home bias” is real, and can result in investors missing out on some pretty amazing long-term growth opportunities outside our borders.
Here’s a list of seven foreign stocks that U.S. investors should be watching right now.
- AstraZeneca (NASDAQ:AZN)
- STMicroelectronics (NYSE:STM)
- Petroleo Brasileiro (NYSE:PBR)
- British American Tobacco (NYSE:BTI)
- Baidu (NASDAQ:BIDU)
- JD.com (NASDAQ:JD)
- Rio Tinto (NYSE:RIO)
Top Foreign Stocks to Buy: AstraZeneca (AZN)
The “vaccine stock” discussion is one that seems to be oddly constrained to two main players among U.S. investors. The Pfizer (NYSE:PFE) vs. Moderna (NASDAQ:MRNA) debate is one that’s intriguing to look at. It’s also one many investors have an opinion one.
However, British-Swedish pharmaceutical and biotech company AstraZeneca is a $188 billion juggernaut in this space. It’s a company that’s bene largely ignored by U.S. investors, due to the fact that the company’s Covid-19 vaccine hasn’t yet been allowed for use by U.S. regulators. Accordingly, a lack of headline news provides what may be an opportunity for investors right now.
The company’s Covid-19 vaccine has been extremely successful in other Western countries in Europe and in Canada. Like Pfizer and Moderna, this vaccine growth has provided for a nice near-term shot in the arm for this stock.
However, Astra Zeneca has a rather robust pipeline of popular drugs that make this stock enticing to me. Among the names investors focus on are cholesterol control drug Crestor, acid-reflux drug Nexium and asthma drug Symbicort.
Accordingly, this is a long-term growth play with plenty of upside for investors seeking growth outside of the U.S.
One of the international stocks I’ve had on my radar for some time is STMicroelectronics. STM is one of the leading chip manufacturers in Europe, and globally as well. This company’s clientele include among the most popular consumer brands, including Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Samsung, Huawei, HP (NYSE:HPQ) and others.
Given the various chip shortages investors are reading about, only a small subset of companies make it into American portfolios. STM stock is one key beneficiary of these same tailwinds, though is less in focus for U.S. investors for the reason that it’s based in Europe. The Italian and French governments hold a combined stake of 27.5% in the Geneva-based chip manufacturer.
Rising demand for semiconductors as a result of this global shortage has led to positive second-quarter earnings. STM clocked net revenue of $2.99 billion while the net income stood at $412 million. Net revenue soared 43.4%, while net income jumped 357.2%. STM has also recently launched a share buy-back program worth $1.04 billion for a period of three years.
These sorts of results highlight the value this top foreign stock can provide to investors who are paying attention.
Top Foreign Stocks to Buy: Petroleo Brasileiro (PBR)
Brazil’s state-owned oil company Petroleo Brasileiro takes the 181st position among Fortune Global 500 companies at the time of writing. This is the largest oil and gas company in Latin America, and is an upstream as well as a downstream energy company.
As a diversified energy player, Petroleo has benefited from oil prices that are now at multi-year highs. Rising energy prices have resulted in rising revenue and earnings for most global players, and Petroleo is no exception.
The company posted solid second quarter earnings, that comfortably beat Wall Street Estimates. As economies reopened, and oil demand increased, this Brazilian oil company saw its revenue more than double year-over-year. The company’s Q2 revenue came in at a whopping $21 billion, as a matter of fact.
Additionally, the company’s free cash flows tripled on a year-over-year basis. That kind of cash flow growth is what fundamentals-oriented investors want to see. With cash flows ballooning to $9 billion, and net debt coming down by 25%, as well as a dividend that’s on the rise, this is one of the foreign stocks investors looking for energy exposure should keep an eye on.
Of course, like other companies operating in Latin America, geopolitical risks are real. Accordingly, this company’s valuation multiple may remain muted. However, it’s a cash flow machine, and one I think is worth a look from value-conscious investors.
British American Tobacco (BTI)
In general, tobacco producers have been out of favor with investors for, pretty much, forever. Cigarette, vapes and other oral tobacco products are among the “sin” categories many investors simply won’t touch. I can’t argue with that perspective.
However, for those with an open mind, U.K.-based British American Tobacco is an intriguing pick in this space. Like its peers, British American Tobacco is looking to transition toward products that are less harmful for its consumer base. Of course, the vast majority of the company’s revenues still come from traditional cigarette sales. However, this is a company many investors are beginning to focus on from a potential long-term growth perspective, with rising prevalence of vapes and other potential verticals (including cannabis) in this company’s future.
Growth in non-combustible products jumped, as consumers more than doubled their adoption of these products last year. The company’s overall revenue growth dropped about 0.4% but cash flow growth (ex-dividend payout) of 33% year-over-year is impressive.
British American Tobacco is a company that may be hard for investors to look at right now. However, for those bullish on the potential of this company’s outlook, as well as BTI’s 8.6% dividend yield, it’s a stock to consider.
Top Foreign Stocks to Buy: Baidu (BIDU)
One of the geographic areas investors looking for top foreign stocks often look to is China. In China, Baidu is among the best companies in the tech sector.
Often called the “Google of China,” Baidu’s search engine holds more than 70% of the market share in China. As the fastest-growing large economy in the world, the potential upside with BIDU stock is obvious.
However, recent regulatory curbs from the Chinese government have muddied the investment thesis for this stock. The Chinese government has begun to crack down heavily on its tech companies. Accordingly, sentiment for investors in Chinese tech is among the lowest it’s been in some time.
For value investors looking for great companies at relatively incredible valuations, now’s the time to consider BIDU stock. Baidu’s price-to-earnings ratio is less than 10, despite rather robust growth in recent years. This is also a stock that’s trading at roughly 2011 levels.
In other words, growth investors get the past ten years of growth for free with BIDU stock. This incredible valuation makes Baidu one of the top foreign stocks I’m considering right now.
Similar to Baidu, JD is another Chinese tech giant that has been hit hard by the recent Chinese government crackdown. While JD has not been explicitly called out by the government or forced to pay any fines, this is a company that most investors know could be in the cross-hairs of regulators.
Like Baidu, JD’s valuation has taken a hit. This is a company that’s currently approximately 25% below its all-time highs.
However, unlike its Chinese tech peers, JD has performed relatively well during this period of instability. That’s partly due to this company’s ability to avoid scrutiny by regulators. However, investors seem to be more bullish on JD’s long-term growth prospects.
Often called the “Amazon of China,” JD’s infrastructure-heavy business model is one that investors seem to like.
I think JD has immense potential to continue to grow, and I like its valuation on this dip. Accordingly, aggressive growth investors looking for deals may want to consider this top foreign stock.
Top Foreign Stocks to Buy: Rio Tinto (RIO)
London-based mining company Rio Tinto is another attractive foreign stock. As the effects of the pandemic start to subside and economies reopen, global demand for iron ore and copper has skyrocketed. Consequently, the mining sector has picked up momentum in the post-pandemic environment.
Rising inflation is broadly bullish for commodities plays. Rio Tinto is among the largest globally in this regard.
The mining company has reported one of its highest-ever earnings in the first half of the current year, along with a stunning dividend payout of $9.1 billion. Recent Q2 results show Rio Tinto posted underlying earnings of $12.2 billion post-tax and royalties payment worth $7.3 billion. Moreover, the company comes with a huge free cash flow of $10.2 billion.
Analysts believe that Rio has strong long-term growth opportunities as the global demand for iron ore will likely continue to rise in this inflationary environment. Moreover, Rio Tinto has a vast portfolio of assets that come with low operating costs. Indeed, RIO stock can be an excellent pick for U.S. investors looking for profitable foreign stocks right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.