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Diversification, Growth and Undervalued Stocks – Looking at Global Gurus and Stocks

Monica Wolfe

Monica Wolfe

118 followers

Along with following some of America’s best investors, GuruFocus also follows 25 international gurus that specialize in various markets throughout the world. From Canada to China and in between, these gurus have demonstrated great success in investing in these different markets. To see a complete list of the international gurus followed by GuruFocus, click here.

Why Invest Internationally?

There are a great many reasons to why one should look to the global spectrum when stock picking but the three primary reasons people look internationally are for diversification, growth and undervalued stocks. According to the U.S. Securities and Exchange Commission, international investing can help U.S. investors spread their investment risk to companies and markets that are outside of – and different than – the U.S. economy. The SEC also notes that international investing takes advantage of the potential for faster growth markets outside the U.S., especially in emerging markets.

Seeing as most investors invest in what they know, investing internationally is a great way to expand domestic knowledge to a global scale. By purchasing securities in different countries and markets as opposed to a solely U.S.-based portfolio, the investor can significantly reduce the impact of country or area-specific economic problems. Also, as the American markets are trading around highs, looking internationally can also aid investors in finding an undervalued bargain.

The Risks of Investing Internationally

Along with the potential of great reward and great diversification, there are also a great number of risks associated with investing internationally. Some of these risks include:

  • Changes in currency exchange rates. Sometimes the exchange rate between the U.S. dollar and another form of international currency will change, and oftentimes that can increase or reduce your investment return.
  • Political and economic events. Along with maintaining a basic knowledge of the American political and economic status and how that can affect stocks, the international stock owner must also have a basic knowledge and comprehension of the political, social and economic factors that could alter foreign markets.’
  • Less data. There is significantly less information provided to investors of international companies in comparison to those in America, and sometimes when enough information is provided it might not be accessible in English.
  • Volatility. There is volatility in all stock markets, which makes it difficult to pick successful stocks, and even more broadly, successful economies.

The following is a chart generated by Investopedia that gives a good look at the historical growth of three international markets in comparison to the United States from 1993 to 2011.

This chart demonstrates the percentage returns on the indexes of international exchanges. By looking at the chart, you can see that these markets do not always follow the same pattern. In some years such as 1996 one market will be down, while the rest are up at least 13%. In other years such as 2005, the U.S. market was up only 3.84% while the other three markets were up much more.

How to Invest Internationally

There are a variety of ways in which investors can expand their search globally. There are mutual funds, American Depositary Receipts, exchange-traded funds, U.S.-traded foreign stocks or direct investments in foreign markets.

American Depositary Receipts are the stocks of most non-U.S. companies that trade in U.S. markets. These companies are traded as American Depositary Receipts, or ADRs, and are issued by U.S. depositary banks. Each ADR represents one share traded in that company. The price per ADR is directly influenced by the price of the stock in its home market.

Investing in global or international funds, such as one of those followed by GuruFocus, means investing in a fund which invests its funds primarily or solely in companies outside of the States. Although some of these funds might invest in U.S. companies that operate internationally.

Another way to invest internationally is simply to trade on foreign markets. If you research and find a stock that only trades outside of the U.S., a stock broker might be able to process that trade. The risk in this is that these companies are not required to file reports with the SEC, so researching these companies will be more difficult.

Favored International Stocks of the Gurus

By looking into the stock purchases of these internationally-focused gurus, there is a literally a whole new world of stock opportunities to be had. The following five stocks come from a variety of continents and countries as well as markets and are also the top-held stocks by our 25 international gurus as of the close of the fourth quarter.

  1. Nestle SA (XSWX:NESN): There are nine gurus that hold a position in the Switzerland-based company. Over the past quarter there were two gurus making buys in the company and two making sells. These gurus hold on to a combined weighting of 36.10%.

Historical income statement for Nestle SA:

  1. 1396907289889.png

British American Tobacco (LSE:BATS): There are seven international gurus that hold a position in England-based British American Tobacco. Over the past quarter there were four gurus making buys of the company’s stock and one guru making a sell of shares in the company. These gurus hold on to a combined portfolio weighting of 24.76%.

Historical income statement for British American Tobacco:

1396907250847.png

  1. Toyota Motor Corp. (TSE:7203): There were seven gurus holding on to Japan-based Toyota over the past quarter. Seven of these gurus were making buys in to the company and there were none reducing or selling out of their position. These gurus maintain a combined portfolio weighting of 24.20%.

Historical income statement of Toyota Motor:

1396907444924.png

  1. Richelieu Hardware (TSX:RCH): As of the fourth quarter there were seven gurus holding a stake in Canadian-based Richelieu Hardware. Of these gurus there were four making buys as well as one making a sell of the company’s stock. These seven gurus maintain a combined portfolio weighting of 12.95%.

Historical income statement of Richelieu Hardware:

1396907586591.png

  1. Novartis AG (XSWX:NOVN): There are seven international gurus holding a spot in Novartis as of the close of 2013. Of these gurus there were four gurus making buys as well as no gurus making any sells of their stake in the company. These gurus hold on to a combined weighting of 12.76%.

Historical income statement of Novartis AG:

1396907798902.png

It is widely known that allocating assets amongst a variety of different securities and industries can benefit in diversifying one’s portfolio, but internationally investing can also be a strong alternative for diversification. By spanning to the global spectrum, an investor reduces the impact to their portfolio from a negative drop in a specific economy. Even furthermore, the availability for international products has increased so dramatically due to the globalization of equity markets that even the average investor can take a chance with diversifying internationally.

Currently, GuruFocus holds a Global Premium Membership which highlights 32 countries and over 50,000 stocks with full 10-year financial data and interactive charts. Along with this detailed stock information, the Global Membership also allows you unlimited access to the trading of the 25 internationally-focused gurus.

Try a FREE 7-day global membership trial here to see different markets such as Canada, Europe and Asia.


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