Our Top 3 International Stocks for 2011

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International stocks, particularly emerging markets, have been on absolute fire over the past few years. Investors have poured more and more money into various regions of the world, including Asia, Latin America, and Eastern Europe. While the general U.S. index has actually lost value over the last five years, indexes such as Vanguard's Emerging Market ETF have seen gains of more than 50%.

2010 saw much of the same, as people sought big growth and great potential abroad. Stocks such as 51job (Nasdaq: JOBS  ) and (Nasdaq: REDF  ) , from China and India, respectively, saw fantastic gains in 2010. Spurred by promising demographic and economic trends, these countries have infinite potential for investors looking in the right places. So on that note, we asked three of our top Fool contributors to identify next year's big winners -- let's see what they have to say!

Tim Hanson, advisor, Global Gains
Chief Investment Officer Tom Gayner was speaking at Fool HQ recently and was asked why his portfolio doesn't have more international exposure. He responded to that question with a question, challenging his interlocutor to decide whether Peoria, Ill., industrial giant Caterpillar (NYSE: CAT  ) , or Japanese auto manufacturer Honda (NYSE: HMC  ) was the more international firm. The answer is that based on where these companies do business, Caterpillar is the more international pick. As it turns out, just 32% of Caterpillar's revenue comes from the U.S. versus 45% for Honda.

Now keep that example in mind as I reveal that my top international pick for 2011 is Bentonville, Ark.,-based retail giant Wal-Mart (NYSE: WMT  ) . Although Wal-Mart is America's largest retailer and employer, the company actually has a very international future -- with aggressive expansion plans in place in China and Brazil, a recent acquisition in South Africa, and a rumored acquisition in Indonesia looming. And while many emerging markets stocks are being valued at a premium at present given the outsized growth expectations in these markets, you can buy Wal-Mart's exposure at a sharp discount given the market perception that it's a low-growth domestic retailer. I expect that perception to change in 2011 and for investors in Wal-Mart to benefit as a result.

Alex Dumortier, CFA, Fool contributor
In this environment, you're much more likely to find 2011's best international stock in the old-world, slow-growth markets of Europe or Japan. Most investors are now chasing emerging market stocks and acting as if no valuation is too high to own a piece of companies in high GDP growth countries -- never mind that the link between GDP growth and stock returns is very weak. Meanwhile, Europe and Japan have been left for dead by investors, despite the fact that both can boast world-class companies, some of which derive substantial profits outside their domestic/regional markets.

If you are willing to consider buying foreign stocks trading on the pink sheets (which I strongly recommend), I urge you to take a look at Pargesa Holding (OTC: PRGAF.PK). This Swiss holding company is jointly controlled by a master capital allocator, Albert Frere (it is no exaggeration to call him the Belgian Warren Buffett).

Pargesa owns large shareholdings in a small number of European blue chips, including Total (NYSE: TOT  ) , Lafarge, and Pernod Ricard, which are all global franchises. Pargesa's Swiss shares currently trade at a 23% discount to their adjusted net asset value, enabling investors to buy some of the world's greatest companies with a healthy margin of safety. However, the U.S.-traded shares are very illiquid and are suitable only for those who would be willing to hold them beyond 2011.

Gerard Torres, Fool contributor
Remember the story of the tortoise versus the hare? Well, Israeli wireless service provider Partner Communications (Nasdaq: PTNR  ) is a lot like the tortoise. It churns out steadily growing profits, which it willingly returns to its shareholders.

The Israeli telecommunications market is undergoing a makeover. Recent regulatory changes have been instituted to promote greater competition. Meanwhile, the wireless market has hit its saturation point and is only expected to grow modestly. That doesn't sound like ideal business conditions, but Partner will be able to overcome these obstacles and continue to build its intrinsic value.

Partner Communications has first-mover advantage. While any new competitors will have to build up their infrastructure, Partner is continually adding customers, particularly to its higher-margin data services. Sure, it's not going to win any awards for staggering growth, but new entrants will have an uphill battle over the next decade if they want to take market share.

In the meantime, Partner offers impressive profitability and strong growth of free cash flow. Better yet, it maintains a dividend policy in which it will pay out at least 80% of its net income to shareholders while carrying a tempting price-to-earnings ratio of 9.2. Just like the tortoise, bit by bit it will get you to the finish line.

The Motley Fool has created a new free report called "The Motley Fool's Top Stock for 2011." In it, we reveal the little company set to profit from the broadband Internet expansion. Get instant access by clicking here -- it's free.

Tim Hanson owns shares of Wal-Mart. Wal-Mart Stores is a Motley Fool Inside Value choice. 51job is a Motley Fool Rule Breakers recommendation. Wal-Mart Stores is a Motley Fool Global Gains pick. Partner Communications and Total are Motley Fool Income Investor recommendations. The Fool owns shares of Vanguard Emerging Markets Stock ETF, and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (9) | Recommend This Article (52)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 20, 2010, at 6:26 PM, MegaEurope wrote:

    Nice, Alex gives Pargesa some love. It's one of the many European companies where I am the only green thumb, it is a bit lonely.

    My top European pick for 2011 is probably CEE - Central Europe and Russia Fund. It trades at an 8% discount and has stakes in Gazprom, Lukoil, Norilsk Nickel, Rosneft and many other highly profitable companies. I wish I had access to the Russian, Turkish and Polish markets but this seems like the next best thing.

  • Report this Comment On December 20, 2010, at 7:34 PM, emptygestures wrote:

    Walmart's great if you don't want your money to do anything for the next 3 years.. It's not like they are posed for growth and their dividend is marginal.

  • Report this Comment On December 20, 2010, at 7:52 PM, MajorBob04 wrote:

    I cannot add Pargesa to CAPS or my watchlist and I suspect that other people cannot add them so that's probably why you're lonely

  • Report this Comment On December 20, 2010, at 11:35 PM, investchief wrote:

    pretty good article. you highlighted some good points and I like international exposure to diversifiy the portfolio.

    Want to me a financial writer? Come on down to the 2011 Annual Writer's Contest at Invest Chief.

    Anyone can sign up! Great prizes/

    check out for more details!!

  • Report this Comment On December 21, 2010, at 6:56 AM, joaquingrech wrote:

    @MegaEurope im with MajorBob04 in this one. I can't add Pargesa to my CAPS either. You were lucky, no clue how you've got in

  • Report this Comment On December 24, 2010, at 9:36 PM, predfern wrote:

    The problem with investing in foreign stocks like PTNR is the taxes on the dividends. What is the dividend after taxes for reinvestment?

  • Report this Comment On December 25, 2010, at 2:41 AM, Dreamzz2011 wrote:

    NTWK $1.9 has greater potential than REDF going forward. Ativo Research (does stock research for Fidelity Investments) predicts that NTWK will "greatly outperform markets" in the next 12 months. NTWK is a global software company trading at a 9 PE and growing exponentially in China/Asia/Middle East.

    Here is a nice summary on this company:

  • Report this Comment On December 26, 2010, at 11:27 AM, ismellbullmkts wrote:

    Thank you for your comment on NTWK. I've never heard about this company before because I don't invest in penny stocks. But it is obvious that NTWK is compelling value at the current share price. I have done a great deal of research on it the last two days and I have to agree that this stock will gain significantly in the near future. I will be a big buyer this week. Happy Holidays to all!!

  • Report this Comment On December 27, 2010, at 6:47 PM, kydderr wrote:

    i cannot stand Walmart and its' business practices so that is no option for my money to be invested in.

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