3 Top Foreign Stocks to Consider Buying Now

Foreign stocks can be a smart addition to any well-rounded stock portfolio. They can add diversification, protect you from currency fluctuations, and allow you to invest in some of the best companies in the world -- not just the best companies in the United States. With that in mind, here are three foreign stocks that look attractive now.

Data source: TD Ameritrade. Stock prices and dividend yields as of 2/2/18.

Why invest in foreign stocks?

There are a few good reasons to add some foreign stocks to your portfolio.

Diversification is the top reason. Just as it's not a great idea to put all of your money in a single sector, it's also not a great idea to put all of your money in one geographic area. For example, if the U.S. economy takes a downturn, foreign stocks could help mitigate the resulting stock market drop.

Image source: Getty Images.

Foreign stocks can also mitigate your currency risk. If your entire portfolio is dependent on revenue in U.S. dollars, you're quite vulnerable to currency fluctuations. On the other hand, if the stocks you own derive their revenue from markets all over the world, currency headwinds can be much less of a risk factor.

Finally, some of the best companies in the world are located in foreign markets. As I'm about to discuss, Toronto-Dominion Bank and Nestle are two of the best companies in the world in their respective industries.

"America's most convenient bank"

I'm a big fan of bank stocks in general and hold several in my own portfolio. However, I think some Canadian banks are among the best-run in the business, particularly Toronto-Dominion Bank, which most Americans know as TD Bank.

TD is the fifth-largest North American bank by assets, and has substantial operations in both Canada and the U.S., although Canada still makes up the bulk of the business. 60% of TD's earnings (and about two-thirds of the bank's customers) are Canadian. In fact, in Canada, TD is the No. 1 bank by assets, as well as by deposits.

TD is primarily a commercial bank with more than 80% of its earnings from retail banking, but it does have some investment banking operations as well.

The bank's track record speaks for itself. Over the past 10 years, TD Bank has delivered 11.5% annualized returns for its shareholders, more than double its North American peer group average. And it has raised its dividend at an impressive 10% annualized rate over the past 20 years. Furthermore, the bank has grown responsibly, with strong asset quality in all types of economic environments, evidenced by its high credit rating (Aa2/AA-) and the fact that it never had to cut its dividend during the financial crisis.

Finally, one of the biggest reasons I like TD Bank is its growth potential. The company has a fantastic record of responsible growth, both organically and through acquisitions, but is only in a relatively small portion of the U.S. market, mainly operating on the East Coast.

If you don't want to pick just one or two foreign stocks

This next choice is an exchange-traded fund (ETF), not an individual stock. The Vanguard FTSE Developed Markets Index Fund ETF is one of the largest funds focused on foreign stocks, with $107 billion in assets.

The fund tracks a broad index of stocks of various market caps and industries, located in markets outside of the U.S. As of Dec. 31, the fund owned 3,844 different stocks, and although the fund's index is market cap weighted, no stock makes up more than 1.4% of the portfolio. Top holdings include household names such as Nestle, which I'll discuss in the next section, as well as HSBC, Samsung, Novartis, and Toyota, just to name a few.

With a 0.07% expense ratio, this is also one of the cheapest ways to get such widespread foreign stock exposure in your portfolio. This means that for every $10,000 you have invested, your annual fees will be just $7 -- so you get to keep most of your gains.

A wide-moat food-service giant

Nestle is one of the largest food companies in the world, with a portfolio of brands that includes household names such as Alpo dog food, Boost nutrition drinks, Coffee-Mate non-dairy creamers, DiGiorno pizzas, Gerber baby-care products, Haagen-Dazs, Hot Pockets, and candy brands such as Nestle Crunch, Butterfinger, and KitKat -- and that's only up to the K's. The point is that Nestle has one of the largest and most diverse portfolios of valuable food brands in the world.

Growth has been tepid lately, and the stock has underperformed the major U.S. stock indices over the past year, but there could be exciting times to come for Nestle's shareholders. For starters, the company is about to unload its U.S. candy business to Ferrero for $2.8 billion in cash, which will eliminate one of the company's worst-performing segments.

Nestle is recognizing that consumer tastes are changing toward healthier eating options, and the company is investing substantial amounts of money to capitalize on this trend. During the second half of 2017, Nestle announced an investment in direct-to-consumer food company Freshly, acquired plant-based food company Sweet Earth and health supplements company Atrium Innovations, and also invested in two premium coffee brands, Chameleon Cold-Brew and Blue Bottle Coffee.

Nestle seems set on shifting its focus toward healthier eating options, which could create some exciting growth opportunities in the years ahead.