As we await the launch of Motley Fool Global Gains, our new international investing service, we're taking a look back at some of our best international stock ideas. This article was originally published on June 12, 2006.
Western Europe. The Old World. Stodgy. Boring. Who wants that?
I do, actually. Rather than dismissing it as old, I contend that Western Europe offers you the best of all investing worlds: strong multinational companies, well-regulated and liquid markets, business leaders who treat shareholders as partners, and quality companies that trade at reasonable valuations. And for those seduced by growth stories, you can get those, too -- just in a "kid-friendly" form.
Safety in the stodgy
The problem with China and other high-growth regions is that they're exciting. And because they're exciting, everyone needs to invest there -- right now! But because everyone "knows" it's the next big thing, prices shoot up, and explosive growth assumptions get baked into equity prices. History has repeatedly shown that chasing such excitement is a recipe for underperformance, unless you're an adept market-timer. Everyone reading this got out of tech stocks before March 2000, right?
Investors in Western Europe get the best of both worlds. The region's world-class companies admittedly haven't seen anything like the growth in China over the past few years. Nonetheless, they've continued to lower their cost bases, drive innovation, and boost their cash flows. But you can take advantage of China's newfound prosperity, too. Capital, like water, seeks its lowest level, and for many European companies, this means headquartering in Germany, France, or Holland, but farming out the easily outsourced tasks to lower-cost countries like China. The benefits of low-cost locales flow to the first-world companies.
: quality, world-class companies
Like consumer staples? It's hard to get much better than Nestle, with products that reach into nearly every household in the developed (and developing) worlds.
Still bullish on energy? I've always been partial to BP
How about banking? Remember, this is the continent that gave us the concept of Swiss bankers. Some of Western Europe's power players include ING Group
Or how about Swedish company Autoliv
And the icing on the cake is that European companies tend to pay robust and rising dividends.
Where's the growth?
Why head to China if you like a good growth story? Coming out of little Holland is GPS navigation specialist TomTom. Trailing-12-month revenue and earnings are up 231% and 213%, respectively, and you get a 60% return on capital into the bargain. Or consider a flyer on nanotech specialist FlamelTechnologies
The Foolish last word
If the first rule of investing is "don't lose money" and the second rule is "see Rule No. 1," then Western Europe is hard to beat. As China grows and evolves, there will be plenty of time and opportunity to invest there. But give me the Old World for now.
Flamel Technologies is a Motley Fool Hidden Gems recommendation.