In this article, we will take a look at 10 best foreign stocks to buy now.
Although it has the largest economy in the world, the United States doesn’t have a monopoly on good companies. There are plenty of companies outside the United States that have high quality businesses with substantial competitive advantages. Some of those companies trade for attractive valuations. Some have attractive earnings growth potential and good products.
Some foreign markets like India could also potentially be attractive for American investors if they pick the right foreign blue chip company stocks. Although India’s GDP per capita is significantly lower than the United States’ GDP per capita, the country is growing much faster, for instance. In 2021, India’s economy expanded 8.9% while the U.S. economy expanded only 5.7%. Given India’s population of 1.4 billion people, India’s economy could potentially grow faster than average for multiple decades if the country’s government makes the right fiscal and monetary decisions. With a fast growing Indian economy, some Indian blue chips could be good investments if they maintain their market share.
Because New York is the financial capital of the world, many foreign stocks are listed on either the NYSE or the NASDAQ. Some of those foreign stocks have done well in the past and some of the companies they represent have the potential to grow further in the future if their management makes the right decisions.
While some foreign blue chips companies have potential, it should be noted that foreign stocks as a whole have not done as well as American stocks as a whole in the past 10 years.
In terms of performance, the Vanguard Total International Stock ETF (VXUS) which “seeks to track the performance of the FTSE Global All Cap ex US Index, which measures the investment return of stocks issued by companies located outside the United States” has had average annual returns of 4.68% over the last 10 years as of 11/30/22.
Meanwhile, the Vanguard 500 Index Fund ETF (VOO) which “invests in stocks in the S&P 500 Index, representing 500 of the largest U.S. companies.” has had average annual returns of 13.29% over the last 10 years as of 11/30/22.
In terms of 2022, many foreign stocks have not done very well given the strong U.S. dollar has made foreign earnings lower in U.S. dollar terms for many companies. Given the high inflation, the U.S. Federal Reserve has increased interest rates substantially this year and as a result, demand for many foreign companies is lower. If the Federal Reserve continues to raise rates, global economic growth could slow and global stocks could decline further.
Given the uncertainties, it could be a good idea for long term investors to own a well diversified portfolio of stocks across many different sectors.
Source: pexels
Methodology
For our list of 10 Best Foreign Stocks to Buy Now, we chose 10 leading foreign companies with a mixture of competitive advantages and growth potential for long term investors.
We then ranked the foreign stocks based on the number of hedge funds in our database who held shares of the same stock at the end of the third quarter.
For those of you interested, also check out Top 15 Most Advanced Countries in the World.
10 Best Foreign Stocks to Buy Now
10. Toyota Motor Corporation (NYSE:TM)
Number of Hedge Fund Holders: 12
Toyota Motor Corporation (NYSE:TM) is a leading Japanese automaker with a trailing P/E of 10.94 and a dividend yield of 4.14%. Although shares of Toyota Motor Corporation (NYSE:TM) have declined almost 21% year to date given macroeconomic headwinds, the company’s stock has doubled from the beginning of 2012 and analysts expect Toyota Motor Corporation (NYSE:TM) to continue to grow EPS in the future.
For the future, Toyota has invested heavily into making hydrogen vehicles and autonomous cars. According to the Wall Street Journal, Toyota Motor Corporation (NYSE:TM) along with several other Japanese companies are also creating a new business to manufacture next generation semiconductors that could begin production by the late 2020’s. Of the 920 hedge funds in our database, 12 owned shares of Toyota Motor Corporation (NYSE:TM) at the end of September.
Alongside Canadian National Railway Company (NYSE:CNI), AstraZeneca plc (NASDAQ:AZN), and ASML Holding N.V. (NASDAQ:ASML), Toyota Motor Corporation (NYSE:TM) is a foreign stock held by many hedge funds in our database at the end of Q3 2022.
9. Royal Bank of Canada (NYSE:RY)
Number of Hedge Fund Holders: 14
Royal Bank of Canada (NYSE:RY) is a leading Canadian bank whose shares have doubled from the beginning of 2012 given increasing earnings over time. In the fourth quarter, Royal Bank of Canada (NYSE:RY)’s earnings increased further as diluted EPS rose 2% year over year to C$2.74. ROE for the period was down 130 basis points year over year to 15.6% and the bank’s CET1 ratio fell 110 basis points year over year to 12.6%. Royal Bank of Canada (NYSE:RY) has a dividend yield of 3.95% as of 12/4.
8. SAP SE (NYSE:SAP)
Number of Hedge Fund Holders: 17
SAP SE (NYSE:SAP) is a Germany tech company that makes enterprise application software. Shares of SAP SE (NYSE:SAP) have almost doubled since the beginning of 2012 given the company’s growth. Although its EPS for 2022 is expected to be lower than what it was in 2021, analysts expect SAP SE (NYSE:SAP) to earn $4.53 per share in 2022, $5.45 per share in 2023, and $6.33 per share in 2024. Shares of SAP SE (NYSE:SAP) are down 19.6% year to date and trade for a forward P/E ratio of 20.16.
7. Thomson Reuters Corporation (NYSE:TRI)
Number of Hedge Fund Holders: 26
Thomson Reuters Corporation (NYSE:TRI) has been a great foreign stock to own for long term investors as its shares have more than tripled from 2012. Earnings of the Canadian financial media giant, which provides business information services globally, has increased substantially over the last 10 years and analysts expect earnings per share to continue to grow in the next five years as well. 26 owned shares of Thomson Reuters Corporation (NYSE:TRI) at the end of Q3, ranking the stock #7 on our list of 10 Best Foreign Stocks to Buy Now.
6. ICICI Bank Limited (NYSE:IBN)
Number of Hedge Fund Holders: 29
ICICI Bank Limited (NYSE:IBN) is a leading Indian bank whose shares are near an all time high given the growth in India’s economy and the bank’s strong businesses. For the quarter ended September 30, 2022, the bank’s core operating profit rose 24% year over year to $1.4 billion and its profit after tax grew 37% year over year to $929 million. Despite macroeconomic headwinds, ICICI Bank Limited (NYSE:IBN) shares have rallied 17.2% year to date in 2022.
Like ICICI Bank Limited (NYSE:IBN), Canadian National Railway Company (NYSE:CNI), AstraZeneca plc (NASDAQ:AZN), and ASML Holding N.V. (NASDAQ:ASML) are foreign stocks that many hedge funds in our database owned at the end of Q3 2022.
5. HDFC Bank Limited (NYSE:HDB)
Number of Hedge Fund Holders: 36
HDFC Bank Limited (NYSE:HDB) ranks #5 on our list of 10 Best Foreign Stocks to Buy Now given 36 hedge funds we track owned shares of the leading Indian bank at the end of the third quarter. With India’s economic growth and the bank’s strong businesses, shares of HDFC Bank Limited (NYSE:HDB) have more than tripled from 2012 and could have more long term upside if the bank maintains its market share in India’s banking market. Despite macroeconomic headwinds, shares of HDFC Bank Limited (NYSE:HDB) have rallied 4.81% year to date.
4. Canadian Pacific Railway Limited (NYSE:CP)
Number of Hedge Fund Holders: 41
Canadian Pacific Railway Limited (NYSE:CP) is a leading Canadian railroad whose stock price has rallied from around $14 at the beginning of 2012 to $82.35 as of December 4. Billionaire Bill Ackman commented on Canadian Pacific Railway Limited (NYSE:CP) in a June 2022 investor letter,
CP is a high-quality, inflation-protected business led by a best-in-class management team that operates in an oligopolistic industry with significant barriers to entry. With an improving volume and pricing outlook combined with the upcoming transformational acquisition of Kansas City Southern (“KCS”), we believe that CP’s prospects are bright.
CP reported revenue growth of 7% in the second quarter as pricing and mix, fuel surcharge pass-throughs and foreign exchange more than offset a small decline in volumes. CP is leveraging the strong pricing environment to renew contracts at an average price increase of over 6%. Pricing directly benefits earnings as rails pass on increases in fuel and other expenses to customers through contractual fuel surcharges and CPI escalators. In addition to earnings growth, high inflation should help rail transportation take share from trucking and lead to incremental volume growth over time. Customers are choosing cheaper transportation solutions as prices rise, and CP’s mission-critical rail service is often the cheapest or only viable method for transporting heavy freight over long distances. High fuel prices and wage gains also disproportionally increase the cost of trucking, which is up to three times less fuel efficient and much more labor intensive than rail transportation.
Canadian Pacific Railway Limited (NYSE:CP) shares are up 14.5% year to date in 2022.
3. Canadian National Railway Company (NYSE:CNI)
Number of Hedge Fund Holders: 42
Canadian National Railway Company (NYSE:CNI) shares have more than tripled from the beginning of 2012 given strong earnings growth. Despite the high inflation, demand for railroads is strong as the Association of American Railroads reported that North American rail traffic rose 2.4% year over year for the week ending November 26. Recently, the U.S. government also passed a bill that averted a potential rail strike that could have affected Canadian National Railway Company (NYSE:CNI). 42 hedge funds in our database owned shares of Canadian National Railway Company (NYSE:CNI) at the end of the third quarter, ranking the Canadian company #3 on our list of 10 Best Foreign Stocks to Buy Now.
2. AstraZeneca plc (NASDAQ:AZN)
Number of Hedge Fund Holders: 44
AstraZeneca plc (NASDAQ:AZN) shares have rallied 17.6% year to date and are near all time highs as analysts expect more earnings growth for the British pharmaceutical giant. In terms of EPS estimates, analysts expect AstraZeneca plc (NASDAQ:AZN) to earn $3.32 per share for 2022, $3.69 per share for 2023, and $4.37 per share for 2024. If AstraZeneca plc (NASDAQ:AZN) continues innovating successfully, AstraZeneca plc (NASDAQ:AZN) could earn even more in the long term. 44 hedge funds in our database owned shares of AstraZeneca plc (NASDAQ:AZN) at the end of September.
1. ASML Holding N.V. (NASDAQ:ASML)
Number of Hedge Fund Holders: 51
ASML Holding N.V. (NASDAQ:ASML) ranks #1 on our list of 10 Best Foreign Stocks to Buy Now given 51 hedge funds in our database held shares in the leading Dutch semiconductor company. ASML Holding N.V. (NASDAQ:ASML) shares have rallied more than 10x since the beginning of 2012 thanks to strong EPS growth. Given the substantial future expected growth in semiconductors and little expected competition in terms of its sector for at least another decade, analysts expect ASML Holding N.V. (NASDAQ:ASML) to continue to grow earnings per share in the future although potential geopolitical issues between China and the United States could eventually lead to some volatility along the way.
Baron Opportunity Fund commented on ASML Holding N.V. (NASDAQ:ASML) in a Q2 2022 investor letter,
ASML Holding N.V. designs and manufactures semiconductor production equipment. It specializes in photolithography equipment, where light sources are used to photo-reactively create patterns on wafers that become printed circuits. ASML is the dominant leader across all types of lithography but, most importantly, is the only company selling equipment for extreme ultra-violet (EUV) lithography, the latest generation technology.
Indeed, because of the stalling out of Moore’s Law, advanced lithography of larger and multi-patterned silicon chips has been critical for leading-edge chip manufacturing and continued improvement in semiconductor chip performance over time. The company is well positioned to continue growing above industry rates as it rapidly adds capacity across its entire business to meet rising industry demand, especially from leading-edge customers continuing to invest to stay ahead of their competitors and drive chip performance forward.
Additionally, the introduction of high-NA EUV technology in the middle of the decade will add another leg to the growth opportunity.
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Disclosure: None. 10 Best Foreign Stocks to Buy Now is originally published on Insider Monkey.
