With so many promising and intriguing U.S.-based companies for investors to choose from, it's perhaps unsurprising that American investors often fail to think about adding foreign companies to their portfolios. But some of those overseas enterprises that are virtually unknown to most Americans are expanding rapidly, and well worth considering.
1. The case for Sea Limited
Singapore-based Sea Limited is an e-commerce, gaming, and fintech giant that has become one of the world's most dynamic companies. Its successes in Southeast Asia and Taiwan have turned it into a juggernaut valued at $180 billion. Some analysts speculate that it could eventually hit a $1 trillion market cap.
Garena, its original division, centers on video games. Its most popular title, Free Fire, has been downloaded more than 1 billion times on Alphabet's Google Play, and the recently released Free Fire Max offers an improved version.
Its e-commerce division, Shopee, has expanded steadily. Not only does it rank first in many Asian markets, but it has increasingly made waves in markets as far away as Poland and Brazil. Little wonder that its revenue from e-commerce and other services surged by 181% in the first half of the year, outpacing its 140% growth in digital entertainment revenue.
Overall, the company's multifaceted operation brought in more than $4 billion in revenue in the first half of 2021, up 153% year over year. For now, though, its operating costs still exceed revenue, and management predicts digital entertainment revenue growth will slow to 44% for the year.
Still, the company also predicts its e-commerce revenue growth will stay in the triple-digit percentages. And its challenges have not held back the stock price, which has risen more than 90% over the last 12 months.
Admittedly, potential new buyers will have to pay a premium for the stock. Sea Limited trades at a price-to-sales ratio of 24 -- significantly more expensive than its South American peer MercadoLibre, which trades at 13 times sales. Nonetheless, as the company expands its foothold worldwide, Sea Limited is beginning to appear "limited" in name only.
2. The case for United Microelectronics
Investors who are interested in capitalizing on the tech boom by adding an Asian chipmaker to their portfolios often think of Taiwan Semiconductor Manufacturing (NYSE:TSM) or Samsung. But according to TrendForce, United Microelectronics has quietly grown into the third-largest pure wafer foundry company as measured by revenue.
United Microelectronics differs from Taiwan Semiconductor and Samsung as it chose not to invest the capital necessary to build chips using fabrication technology smaller than the 14-nanometer process. While that would appear to put United Microelectronics behind its rivals, it leaves the company free to make chips for applications such as IoT and automotive. Approximately 80% of its revenue in Q2 came from chips built using processes larger than 28 nm.
Moreover, this approach has not stopped its expansion. In Q2, it reported capacity utilization of "over 100%," due largely to the global chip shortage. United Microelectronics also expects to spend $2.3 billion on capital expenditures in 2021, presumably to expand capacity. This will be a dramatic increase from the $1 billion it spent in 2020 or the $600 million it invested in 2019.
In the first six months of 2021, United Microelectronics generated operating revenue of 98 billion New Taiwan dollars ($3.5 billion), a 13% increase from the first half of 2020. Slow growth in operating costs and NT$2.6 billion in gains on financial assets allowed it to earn NT$22 billion ($780 million) in the first half of 2021, almost triple its profits from the prior-year period.
Such growth has helped propel the stock higher by 80% over the last year. But despite these gains, its P/E ratio remains at around 20, well below Taiwan Semiconductor's earnings multiple of 30.
Management did not issue guidance beyond the quarter, an omission that could cause investors to be concerned about how the company will perform after the chip shortage ends. Nonetheless, with a low P/E ratio and the ability to command sales in its niche, United Microelectronics continues to offer investors the considerable potential for gains.