U.S. stocks are currently hovering near all-time highs, but investors might be concerned that the economic aftershocks of the coronavirus pandemic, unpredictable political headwinds, or high valuations might end that rally. To offset some of that risk, investors should consider holding a few overseas stocks that aren't too dependent on the U.S. economy.
Let's examine three international companies you're already likely familiar with -- and why they could be sound investments in a turbulent market.
Swiss packaged foods giant Nestlé (NSRGY 1.51%) owns over 2,000 brands worldwide, including roughly 30 brands that generate more than a billion Swiss francs ($1.13 billion) in sales annually. Its top brands include Nespresso, Kit Kat, Gerber baby food, San Pellegrino mineral water, and Purina pet food.
Nestlé's organic sales rose 3.5% in 2019, while its underlying earnings rose 11% in constant currency terms. Its organic sales grew another 3.5% in the first nine months of 2020, led by strong sales in America and robust demand for its Purina pet food and health supplements worldwide.
Nestlé expects its organic sales to grow 3% for the full year, and it continues to divest weaker segments (like Nestlé Skin Health and its ice cream business in the U.S.) to streamline its business. Analysts expect its total sales and earnings to rise 1% and 5%, respectively, this year.
Nestlé isn't much more exciting than American packaged foods companies like General Mills or Kraft Heinz, but it's reasonably valued at 24 times forward earnings, pays a reliable forward yield of 2.5%, and has traditionally been a solid defensive stock during economic downturns.
Spotify (SPOT 0.22%), which is based in Sweden, owns the world's largest paid streaming music platform. Its total monthly active users (MAUs) rose 29% year over year to 320 million last quarter. Its paid subscribers grew 27% to 144 million, while its ad-supported MAUs increased 31% to 185 million.
Spotify isn't profitable yet, but its gross margins are stable and its free cash flow is rising. However, high content costs, sluggish ad spending throughout the pandemic, and rising investments in podcasts all throttled its operating margins throughout 2020. On the bright side, that pressure could ease as Spotify's expanding audience gives it more leverage in negotiations or companies buy more ads after the pandemic ends.
Spotify remains a speculative investment, and it still faces fierce competition from tech titans like Apple and Amazon. But despite that pressure, analysts expect its revenue to rise 40% this year and another 22% next year.
Spotify won't turn a profit anytime soon, but its stock looks fairly cheap at five times next year's sales. By comparison, China's Tencent Music, which Spotify owns a stake in, still trades at seven times next year's sales.
Sony (SONY -0.27%), one of Japan's largest conglomerates, is often considered a slow-growth company. But this year, analysts expect its revenue and earnings to rise 12% and 29%, respectively, as three tailwinds kick in.
First, Sony claims the PS5, which arrived last November, marked its "biggest console launch ever" as "unprecedented demand" outstripped retailers' supplies. Robust sales of the PS5 should offset the sluggish growth of its weaker electronic products and solutions (EP&S) business, which sells its consumer electronics and mobile devices, and its Pictures segment, which was hit by postponed movies throughout the pandemic.
Second, Sony Music, which houses its music, anime, and mobile gaming divisions, should continue growing with high streaming revenue, new anime releases, and the strength of top mobile games like Fate/Grand Order. All three businesses, like its core PlayStation gaming business, will likely benefit from ongoing stay-at-home measures.
Lastly, Sony expects its financial services to grow over the next two quarters, thanks to bigger profits from its investments at Sony Life and Sony Bank. In other words, Sony's strengths should easily offset its weaknesses, and its stock still looks reasonably valued at 21 times forward earnings -- even after its stock price advanced more than 40% over the past 12 months.