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The mere mention of “international stocks” is enough to send most investors cowering in a corner. There’s a generalized anxiety that a company that resides in another country somehow has no safeguards in place like our SEC does, or that companies can engage in corruption that its unsophisticated government won’t catch, or that instability may somehow affect the company and ruin the stock.
All of this can be true. I would be wary, for example, of companies in truly emerging markets like Africa. A colleague who operates in the Chinese movie business knows that the exhibitors skim money off the top before reporting it.
But for developed countries, the prospect for fraud and instability is not nearly as great as feared.
These three stocks, for example, are world class companies that have little reason to be wary of. You should consider them for your long-term portfolio.
Top International Stock #1: Teva Pharmaceutical Industries
The first stock I ever purchased when I started investing in the market, and have traded in and out of every since, is Teva Pharmaceutical Industries (NASDAQ:TEVA).
Based in Israel, Teva had been a big player in the generic pharmaceutical industry for some time when it began developing its own multiple sclerosis drug, Copaxone. That diversified its business model back in the late 1990’s, and it became a significant player in the MS market.
Now it is also in the Parkinson’s market, narcolepsy, sleep apnea, pain management, leukemia, asthma, allergies, and contraception. Not bad for a company that once focused only on generics.
Today, Teva is one of Israel’s largest companies and is one of the biggest generic players in the pharma world, offering 1,450 generic drugs in more than 60 countries.
Management always has been ahead of the curve and managed the company beautifully. With a five-year annualized projected growth rate of 7%, well more than $2-3 billion in annual free cash flow and a 2.3% yield, I see Teva as so far ahead of the competition that it won’t be giving up any ground for a very long time.
Top International Stock #2: Petroleo Brasileiro SA
I have long insisted that you own some form of energy stock in your portfolio. Ilike all the domestic oil explorers, but it also helps to look abroad for these opportunities. Since owning oil itself is too volatile a play, I prefer explorers and producers.
Petroleo Brasileiro SA (NYSE:PBR), commonly known as Petrobras, is pretty much the only game in town in Brazil, where it produces, refines, trades and transports the black stuff.
As with the big oil companies here in the U.S., Petrobras makes billions upon billions every year in profits. It carries low interest debt (5%), and its net margins of 16.5% exceed those of all of our companies, which are all 11.8% and under.
Top International Stock #3: Diageo PLC
I also really like Diageo PLC (NYSE:DEO). There’s always going to be a demand for booze (Prohibition certainly proved that), and that demand is growing internationally. Diageo owns some of the world’s most famous brands, including Johnnie Walker, Tanqueray and Captain Morgan.
Booze in general is a good play because human social behavior is often centered around its consumption. In an effort to innovate, Diageo and others are ramping up flavored spirits.
If you’ve been to your supermarket lately and seen the peanut butter and jelly-flavored vodka, you know what I mean.
As you would expect, five-year annualized growth exists, and it’s in the 10% range. Diageo routinely produces between $2 billion and $3 billion annually in free cash flow, returning about half of that to shareholders in the form of a nice 4% yield.
Lawrence Meyers does not own shares in any company mentioned.
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