If you're at all serious about maximizing your portfolio's returns, you can't afford to ignore the powerful punch provided by international stocks.
This is not just an opinion. Increasing your exposure to foreign stocks, up to a certain point, both raises your expected returns and lowers your risk. It's what Princeton professor Burton Malkiel calls "the closest thing to a free lunch in our world securities markets." Not buying foreign stocks, says Wharton professor Jeremy Siegel, "is a risky strategy for investors."
Today I'm prospecting for promising international ideas using my "safe, low-P/E" screen, which is designed to avoid the value traps you so often see in low-multiple stocks. The idea is to find low-P/E companies that carry a relatively low amount of risk but also the potential for reasonable growth.
I'll start with all international companies available on major U.S. exchanges with a market cap of at least $500 million.
- To minimize bankruptcy risk, I'm only considering companies with total debt less than 60% of capital.
- In hopes of capturing a reasonable amount of growth, I'm keeping only companies expected to grow EPS at 5% annually or better over the next five years. Furthermore, I'm requiring at least 5% annualized growth over the past five years.
A total of 75 companies passed my screen. Here are the 20 with the lowest forward price-to-earnings multiples:
|
Company |
Market Cap |
Forward P/E |
Debt-to-Capital |
Estimated EPS
|
|---|---|---|---|---|
|
Gafisa S.A. |
$1,224 |
3.0 |
48% |
17% |
|
Rio Tinto |
$90,144 |
4.6 |
21% |
6% |
|
POSCO |
$23,498 |
4.7 |
37% |
7% |
|
Sterlite Industries |
$7,121 |
5.2 |
19% |
17% |
|
BHP Billiton plc |
$152,053 |
5.4 |
22% |
21% |
|
Kulicke & Soffa Industries |
$577 |
5.5 |
18% |
16% |
|
CNOOC |
$70,599 |
6.0 |
14% |
5% |
|
Flextronics International |
$4,352 |
6.1 |
50% |
12% |
|
VimpelCom |
$15,275 |
6.4 |
59% |
17% |
|
Teva Pharmaceutical |
$33,154 |
6.4 |
21% |
11% |
|
Sinopec Shanghai Petrochemical |
$6,237 |
6.5 |
20% |
10% |
|
Axis Capital Holdings |
$3,420 |
6.6 |
16% |
11% |
|
Centrais Electricas Brasileiras S.A. |
$15,264 |
6.8 |
32% |
7% |
|
Autoliv |
$4,444 |
6.8 |
18% |
7% |
|
IRSA Investments and Representations |
$565 |
7.5 |
47% |
24% |
|
Compania de Minas Buenaventura SA |
$10,067 |
7.9 |
3% |
19% |
|
Gruma S.A.B. de CV |
$966 |
7.9 |
38% |
5% |
|
ACE Limited |
$20,630 |
8.0 |
22% |
9% |
|
Cia Energetica de Minas Gerais |
$8,929 |
8.0 |
53% |
5% |
|
SeaDrill |
$12,332 |
8.0 |
58% |
11% |
Source: S&P Capital IQ.
I'm most familiar with Kulicke & Soffa Industries; I bought it for my real-money Rising Stars portfolio (see the buy report here). This list is a good place to start your research. And I do encourage you to conduct due diligence, as well as understand that these companies can be volatile, especially the smaller ones.
You can learn more about the power of international stocks with our special report, The Hottest IPO of 2011, which looks at the top McDonald's franchiser in Latin America. It's free; just click here for your copy.
