U.S. stocks have outperformed their foreign brethren for more than 10 years.
So now might be a time to consider overseas stocks, though perhaps not to buy them immediately given market fragility.
“Limiting your search for compelling investments to U.S. companies only limits your opportunity set,” wrote Morningstar investment specialist Susan Dziubinski.
“Granted, international stocks carry currency risk, and, especially in emerging markets, they carry geopolitical risk. But for patient investors with long enough time horizons, international stocks can be compelling opportunities.”
Morningstar offered a list of three undervalued foreign stocks to which it assigns moats. Undervalued means the stocks trade below Morningstar’s fair value estimates. And a moat means Morningstar sees durable competitive advantages for the company.
Here’s the terrific troika. “These stocks are good choices for investors who want exposure to non-U.S. companies with solid competitive advantages at a cheap price,” Dziubinski said.
Tencent
(TCEHY) -), the Chinese Internet titan
Morningstar moat rating: wide. Morningstar fair value estimate: $90. Thursday price quote: $37.35.
Morningstar analyst Ivan Su was impressed with Tencent's Digital Ecosystem Summit last month. It
- “reinforced the network effect underpinning our wide-moat rating through crossing the 400-million-user milestone for Tencent Meeting, [its conferencing service].
- “alleviated concerns about Tencent's ability to capture opportunities in artificial intelligence, and
- “shed light on the monetization potential of its array of enterprise solutions,” Su wrote.
Meanwhile, “games remain Tencent's primary monetization model,” providing over 40% of operating income, he said. “Tencent should continue to leverage its unrivaled access to user data and financial capital to create innovative, high-quality, and long-cycle games with a mobile-first approach.”
Bayer
(BAYRY) -), the German healthcare/agriculture giant
Morningstar moat rating: wide. Morningstar fair value estimate: $22.50. Thursday price quote: $11.20.
Bayer’s healthcare segment is particularly strong and “to a lesser extent” the crop science business, wrote Morningstar analyst Damien Conover.
“While the company’s lowered 2023 guidance is disappointing, we continue to believe new CEO Bill Anderson (started in the second quarter) is likely establishing a low base from which to build growth.”
Indeed, “we are increasingly optimistic that Anderson will increase the speed of development and execution that Bayer needs to accelerate innovation, especially in the drug business.”
Millicom International Cellular
(TIGO) -), a telecommunications service provider in Latin America
Morningstar moat rating: narrow. Morningstar fair value estimate: $30. Thursday price quote: $15.35.
“Millicom’s operational struggles continued during the second quarter,” wrote Morningstar analyst Michael Hodel.
“Consolidated profitability remains under pressure, as revenue growth has lagged inflation and the firm spends on restructuring efforts.” But, “we expect Millicom will take steps in the coming quarters to improve its overall position,” he said.
“The firm’s operations in Colombia and Guatemala remain key sore spots,” Hodel said. “Conversely, Guatemala is Millicom’s most important market. It holds the market share lead in the wireless market.”
