Buy American In 2011?

2/7/2011


U.S. investors would have benefited from a "Buy American" approach in 2010. Most U.S. stock markets handily outperformed foreign markets for the year. The MSCI EAFE Index, the benchmark for developed countries, rose 8% in 2010, a decent showing but below the gains of the Dow Industrials (14%) and S&P 500 Index (15%). And a more encompassing foreign benchmark, the Dow Jones Global ex-U.S. Total Stock Market Index, rose more than 13%, trailing the 17% rise in the Dow Jones U.S. Total Stock Market Index.

To be sure, some countries outperformed the U.S. For example, Chile rose more than 49% in 2010. Several Asian markets, such as Indonesia (up 38%) and South Korea (up 24%), bested U.S. market indexes. Still, the bulk of countries produced returns inferior to the U.S., including such foreign favorites as China (up 5%), Brazil (up nearly 6%), and the United Kingdom (up 7%).

Will U.S. dominance continue in 2011? The Dow Industrials are up 4.0% year-to-date, versus 4.0% for the MSCI EAFE.

It is far too early in the year to pick a winner, though many foreign markets — particularly emerging economies — face a problem the U.S. probably will not. Inflation.

The Blue Chip consensus projects China's inflation rate at 3.9% this year, with Brazil at 5.1% and India 7.3%. Those countries are responding to the inflation by boosting interest rates. Unfortunately, neither high inflation nor rising interest rates will help equities. Stock markets in China, Brazil, and India are down so far in 2011.  

Given what looks like a challenging year for many overseas markets, U.S. investors would do well to employ a powerful tool when venturing abroad for stocks. Fortunately, our Quadrix® stock-rating system provides a helpful tool for evaluating foreign stocks.

The table below lists companies based outside the U.S. that score 80 or higher (out of a possible 100) in Quadrix Overall and Value.  The Forecasts currently recommends only two foreign stocks, Canada-based Rogers Communications ($35; RCI) and Research In Motion ($60; RIMM), both rated Buy and Long-Term Buy. However, all of the stocks listed in the table represent interesting options for investors seeking overseas exposure.

HIGH-SCORING INTERNATIONAL STOCKS
The 10 foreign stocks below all earn Quadrix Value and Overall scores of 80 or higher. Stocks rated A on our Monitored List or recommended for purchase in our sister newsletter, Upside, are presented in bold.
Quadrix Scores
Company (Price; Ticker)
Div.
Yield
(%)
Market
Cap.
($Bil.)
52-Week
Price Range
($)
Value
Overall
Country
AstraZeneca
($49; AZN)
4.9
71.2
54
 - 
40
92
82
U.K.
Domtar ($90; UFS)
1.1
3.9
91
 - 
46
96
98
Canada
Gazprom ($28; OGZPY)
0.9
158
28
 - 
18
98
99
Russia
Millicom Int'l Cellular
($95; MICC)
2.8
10.3
103
 - 
68
84
97
Luxembourg
Novartis ($57; NVS)
2.9
131.2
60
 - 
43
86
90
Switzerland
Petrobras ($38; PBR)
0.4
167.2
43
 - 
27
93
93
Brazil
Research In Motion
($60; RIMM)
0
31.7
77
 - 
43
97
99
Canada
Rogers Communications
($35; RCI)
3.6
20.3
41
 - 
30
90
88
Canada
Sanofi-Aventis
($35; SNY)
3.1
92.5
39
 - 
28
92
87
France
Telefonica
($26; TEF)
5.4
115.5
28
 - 
18
91
90
Spain

One particularly noteworthy issue is Novartis ($57; NVS). Shares of this Switzerland-based health-care company should benefit from acquisitions. The company completed its takeover of eye-care giant Alcon in December. In January, Novartis announced a deal to acquire Genoptix ($25; GXDX), a provider of hematology and oncology diagnostic services. A yield of nearly 3% enhances total returns. While pharmaceutical stocks in general should continue to feel pressure from patent expirations and the lack of blockbuster drugs, Novartis, with its focus on growing markets, should continue to outperform the group.

For investors who prefer a less-targeted approach to investing overseas, the Forecasts recommends four international mutual funds:

T. Rowe Price International Discovery ($44; PRIDX; 800-638-5660). This fund focuses on small-cap and midcap foreign stocks.


Vanguard Emerging Markets Stock Index ($30; VEIEX; 800-662-7447). This fund owns stocks in emerging countries, including the "BRIC" countries (Brazil, Russia, India, and China).


Vanguard International Value ($33; VTRIX; 800-662-7447). This fund focuses primarily on large-cap stocks in developed countries.


Vanguard Total International Stock Index ($16; VGTSX; 800-662-7447). This fund attempts to track the MSCI All Country World ex USA Investable Market Index, with investments in numerous mature and emerging countries.

Investors can purchase all four funds directly from the fund companies, with no sales fee.


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