In the last two issues of December, I picked several U.S. and Canadian stocks that I felt would do well in 2014. All were previous IWB recommendations.
To close out this series, let's look overseas. Here are two international stocks that I like for the coming year. These trade as ADRs in New York.
Baidu Inc. (NASDAQ:BIDU). This is the Chinese equivalent of Google which obviously makes it a very large company with great growth potential. The stock was originally recommended by contributing editor Glenn Rogers in February 2011 at $128.80 (figures in U.S. dollars). It has been extremely volatile, falling to as low as $82.98 last April. But it has been on a tear since mid-summer, closing on Friday at $175.28. That's just short of its 52-week high of $181.25, reached on Dec. 11.
Glenn Rogers last updated the stock as a Buy on Oct. 21 at $165.91, citing the company's strong financial performance and growth potential. Shortly thereafter, the company issued some mixed third-quarter financial results. Total revenue was up 42.3% to almost $1.5 billion. However, most of that was absorbed in higher expenses; profit was ahead only 1.2% to $545.4 million.
Two major factors contributed to the higher costs. Selling, general and administrative expenses were $226.2 million, representing an increase of 115.4% from the corresponding period in 2012, primarily due to promotional expenses for mobile products. Research and development expenses were $178.2 million, a 77.5% increase from the corresponding period in 2012, due mainly to an increase in the number of research and development personnel. Both these represent an investment in future growth so investors were not overly concerned by the small size of the profit increase.
Baidu's market cap is increasing rapidly and now stands at almost $63 billion. The stock is not cheap with a trailing 12-month p/e ratio of 36.1 and a forward p/e of 28.7. And there is no dividend so this is strictly a security for growth-oriented investors who are willing to live with volatility. But China has almost 600 million Internet users and most of them use Baidu. A few years from now, the current price will look cheap.
Diageo plc (NYSE:DEO). It's hard to lose money on booze and this is the world's largest liquor company. Based in London, it controls many of the best-known brands including Johnnie Walker, Crown Royal, J&B, Bushmills, Captain Morgan, Tanqueray, Guinness, and a host of others.
This is another pick from Glenn Rogers, who recommended it in September 2007 at $85.42 (figures in U.S. dollars). It fell all the way to the $40 level during the 2008-09 crash but has been on a steady rise since, finishing on Friday at $130.82. Glenn's current target is $150.
The company only releases financials twice a year with the announcement of the first half results for fiscal 2014 due on Jan. 30. The dividend is tied directly to the bottom line; the payout in 2013 was $2.92 per share, up from $2.76 in 2012. It's expected we will see another increase in the dividend this year.
The company has a market cap of almost $90 billion. The trailing 12-month p/e ratio is 21.8 while the forward p/e (based on expected 2014 results) is 17.5.
This is one of the rare growth stocks that also offers a reasonable dividend, with a current yield of 2.2%, based on the 2013 payout. It is therefore well suited for all types of portfolios. - G.P.