5 Foreign Superstars

Where should you search for great stocks? The answer is ... anywhere and everywhere.

World markets are growing
You simply can't ignore foreign stocks. The U.S. market is estimated to have accounted for about 66% of the world's stock market capitalization 30 years ago, but that figure has fallen to about 40% today and is likely to keep falling. Yet even though non-U.S. stocks make up the majority of the world's markets, the average U.S. investor, by most accounts, is investing a paltry percentage of his or her assets overseas.

That's an unfortunate reality, because over the past five years, the MSCI EAFE index, which tracks world markets, has more than doubled the return of the S&P 500. In fact, the value of the S&P 500 is lower than it was in 1999.

Opportunities abound
Many countries are experiencing a level of growth that an economy the size of the U.S. can't possibly achieve. Baby versions of Apple and Microsoft may exist in far-flung corners of the world, where they can offer enormous potential returns for those who discover them.

Stocks that have a five-star rating in our 115,000-member Motley Fool CAPS community have significantly outperformed the market. The CAPS screener can pick and choose foreign stocks that not only have five-star ratings but also have a highly desirable blend of both growth and value.

Company

P/E Ratio

EPS Growth, Past 3 Years

Return on Equity

Aluminum Corp. of China (NYSE: ACH  )

7.0

25.71%

20.4%

AU Optronics (NYSE: AUO  )

3.6

40.28%

26.5%

France Telecom (NYSE: FTE  )

8.4

24.93%

21.1%

Mobile Telesystems (NYSE: MBT  )

8.7

39.34%

38.9%

Tele Norte (NYSE: TNE  )

6.9

61.28%

22.1%

These stocks are not recommendations but rather a possible starting point for further research.

Aluminum Corp. of China
As the largest aluminum producer in China, this company is well positioned to benefit from the huge anticipated growth of Chinese manufacturing. However, the stock has lost more than 75% of its value since last October, hammered by the falling Chinese market and rising energy costs. Energy is a huge percentage of manufacturing costs, and escalating prices have taken their toll on U.S. counterpart Alcoa (NYSE: AA  ) as well. In addition, the company has had to cut back production because of Chinese efforts to curb manufacturing in an attempt to save energy for the Olympics.

The falling price has given the company a fat 5% dividend yield, enough to make it one of the highest dividend payers in China. The company could benefit in the near term from falling oil prices and a rollback of Chinese manufacturing curbs.

AU Optronics
The world's third-largest maker of flat-panel displays boasts an earnings-per-share growth rate of more than 40%, yet it's selling at a microscopic 3.5 times earnings, near its 52-week low. Why so cheap? The market thinks the global economic slowdown will kill the highly cyclical demand for these products in the upcoming quarters. The market could be right. The company has already cut back production in anticipation of slower demand, and it gave a heads-up during its most recent earnings report that things are slowing down.

Tele Norte
Tele Norte is already the largest telecom provider in Brazil. Further growth opportunities lie where the company faces the most competition -- in wireless and mobile services. But in those areas, it was performing solidly. Wireless revenue for the company grew more than 50% last quarter, and mobile services accounted for more than 23% of total second-quarter revenues. Tele Norte also sells at a lower valuation and a higher growth rate than its industry peers. Brazil has been one hot market, too. It more than tripled in value between mid-2003 and the end of 2007.

France Telecom
Is the eye-popping 9.6% dividend safe? Well, France Telecom has steady earnings growth relative to the industry. And although profits fell last quarter, revenue remained fairly consistent. The company also has a beta of just 0.69 and sells near its 52-week low. France Telecom could offer some price stability in a tough market. The dividend alone, if it holds up, is probably all you'll need to beat the market.

Mobile Telesystems

Along with Vimpel Communications (NYSE: VIP  ) , Mobile Telesystems is one of the primary telecom providers in Russia. The stock has been a ten-bagger since mid-2001. Revenue and EPS growth have been stellar. In fact, just last quarter, the company announced revenue growth of 34% and net income growth of 30%. But the stock sold off recently with the Russian war in Georgia -- it now trades at just 6.9 times earnings. Although the earnings growth is there, so are the political and economic risks associated with Russia.

The Foolish bottom line
The U.S. economy and its stock market have been sputtering. But the good news is that more investment prospects now exist throughout the world than ever before. The opportunities to make money are out there. We just have to find them, and our free CAPS community can help!

Apple is a Motley Fool Stock Advisor recommendation. Microsoft is a Motley Fool Inside Value pick. France Telecom is a Motley Fool Income Investor selection. Try these or any of our Foolish newsletter services free for 30 days.

Fool contributor Tom Hutchinson holds no financial position in any companies mentioned. The Motley Fool has a disclosure policy.


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