Forecasts Expands Foreign Coverage

7/11/2011


The Forecasts is taking its act on the road. Specifically, we're boosting our coverage of international stocks.

Historically, the Forecasts has focused on U.S. stocks. We have recommended the occasional foreign stock, usually Canadian or British companies, which tend to provide more of the statistics we need to generate Quadrix scores.

But with the continued globalization of the economy, it makes sense for us to start looking overseas more often. We're adding 11 foreign stocks to our Monitored List and one to our Long-Term Buy List.

In 2010, the U.S. comprised 19.7% of the global economy, with the combined European Union managing a slightly higher gross domestic product. In 2000, the U.S. economy accounted for 31.2% of the world's economic output. While U.S. companies are capitalizing on overseas growth opportunities, several U.S.-traded stocks of foreign companies have good Quadrix scores and solid fundamentals.

New markets, old values

Don't expect us to start recommending risky investments in emerging markets. A recent string of accounting scandals among U.S.-traded shares of Chinese companies illustrates just one of the risks inherent in emerging-market stocks. All of our new additions trade on U.S. stock markets and hail from countries with well-developed economies and financial markets. Still, even our foreign picks carry built-in risks you won't face with U.S. companies of similar size.

• Not all foreign companies report data quarterly, and regardless of how often they report, most do not hew to U.S. accounting standards.

• Many foreign companies, even large ones, don't generate a lot of news in this country. And in many cases, the news does not make it to U.S. investors in a timely manner.

• Analyst coverage can be sparse. For example, German chemical concern BASF ($98; BASFY), Japan's Nippon Telegraph & Telephone ($24; NTT), and automaker Volkswagen ($38; VLKAY) all boast market capitalizations above $50 billion, yet their U.S. profit consensus relies on just one or two analysts.

• Foreign stocks may not offer much liquidity. While the biggest companies may trade heavily on their home markets, in the U.S. many of these large-caps have the type of trading volume we associate with small-caps.

Investors who wish to go global should keep the above risks in mind. But some foreign stocks are worth the risks. We currently recommend Canadian media conglomerate Rogers Communications ($40; RCI), and we are adding BASF to the Long-Term Buy List today.

Going forward, Forecasts subscribers can still expect our recommended lists to contain mostly U.S. stocks. But any angler can tell you that when you cast your nets over a wider area, you haul in a greater assortment of fish. We're excited about our new catches, discussed below.

ArcelorMittal ($35; MT), a steelmaker headquartered in Luxembourg, operates in more than 60 countries. Last year, the company made more than 90 million tons of steel, roughly 8% of global production.


Sweden's AutoLiv ($79; ALV) makes automotive-safety systems. Of the 11 foreign stocks we are initiating today, Autoliv is one of only two that file the quarterly 10-Q reports required of U.S. companies.


Barrick Gold ($46; ABX), based in Canada, is the world's largest producer of gold. The company operates 26 mines, and its proven or probable reserves of 140 million ounces are unmatched in the industry.


German chemical concern BASF ($98; BASFY) generated revenue of nearly $93 billion last year, 69% higher than the world's next-largest chemical manufacturer. The stocks is being added to the Long-Term Buy List.


Covidien ($54; COV), based in Ireland, collects about two-thirds of its revenue from medical devices, including products used for surgery, patient monitoring, and tissue repair.


Nippon Telegraph & Telephone ($24; NTT), Japan's largest telecommunications company, serves more than 30 million land-line subscribers and 58 million mobile customers.


Swiss pharmaceutical maker Novartis ($62; NVS), with a market capitalization above $139 billion, is the largest of the companies we are adding and the fourth-largest drug stock that trades on a U.S. exchange.


Denmark's Novo Nordisk ($127; NVO) specializes in drugs for the treatment of diabetes. Biotechnology accounts for about one-fourth of the company's sales.


Germany's SAP ($61; SAP) makes software that helps companies operate their businesses, competing directly against such powerhouses as Oracle ($33; ORCL). SAP is the world's fourth-largest software company as measured by both market value and revenue.


Toyota Motor ($84; TM), with a market capitalization of more than $131 billion, is 61% larger than the No. 2 automaker, Germany's Daimler ($76; DDAIF), and more than double the size of the two big U.S. automakers. Vehicle shortages are weighing on sales this year.


German carmaker Volkswagen ($38; VLKAY) enjoys substantial momentum in the U.S., with sales up 22% in the six months ended June. Only one U.S. analyst provides profit estimates for Volkswagen.

The meaning of the Monitored List

By design, our Monitored List contains the 50 largest U.S. stocks. These stocks combine for about half of the S&P 500 Index's market capitalization, and all are worth watching because of their potential effect on the broader market.

Stocks that are not in the top 50 make it on the Monitored List for one of two reasons:

• They are industry leaders that either exert influence over other stocks or offer insights on important sections of the market. That explains why we keep some low scorers such as steelmaker Nucor ($41; NUE) on the list. However, industries change over time, and some companies on the Monitored List — such as Heinz ($53; HNZ) — have become less relevant in recent years.

• They have enough investment appeal that we either recommend them as buys or suspect we might want to do so in the future. This brings many midcaps onto the list. However, after downgrades we can end up with companies like Dolby Laboratories ($42; DLB) and L-3 Communications ($87; LLL), which no longer qualify as Buys and do not wield enough market power to warrant a spot on the Monitored List.

This week, we are dropping 11 stocks from the Monitored List to make room for the new foreign giants. Stocks being dropped are: CA ($23; CA), Devon Energy ($80; DVN), Dolby, Energen ($58; EGN), General Mills ($37; GIS), Heinz, Kohl's ($52; KSS), L-3 Communications, Questar ($18; STR), Raytheon ($50; RTN), and Transocean ($64; RIG). Some of those stocks earn strong Quadrix scores, others do not. We made our selections with an eye to market coverage, not potential investment appeal.

INTRIGUING GLOBAL STOCKS
All 16 of the large foreign stocks presented below generate sufficient data to compute fairly reliable Quadrix scores. While not all look like solid investments (note the Quadrix scores), all are important enough to warrant watching. We are adding 11 of the stocks to our Monitored List this week. While all 16 companies report their results in English, not all provide reports in U.S. dollars, and few follow U.S. accounting rules. An A rating means above average, B average, and C below average. BASF ($98; BASFY) is being added as a Long-Term Buy.
Company
(Price; Ticker)
Stock-
Market
Value
($Bil.)
Freq. Of
Reporting
to SEC
10-Q
U.S.
GAAP
Reports
in U.S.
Dollars
No. of
Analyst
Ests.
Avg.
Daily
Trading
Volume
(Thous.)
Exchange
Where
Traded
Quadrix
Overall
Score
Industry
Country
Rating
ArcelorMittal
($35; MT)
53.8
None
No
No
Yes
8
4,551
NYSE
38
Steel
Luxembourg
C
Autoliv
($79; ALV)
7.4
Qtly.
Yes
Yes
Yes
17
1,010
NYSE
93
Auto Parts & Equip.
Sweden
A
Barrick Gold
($46; ABX)
46.0
Qtly.
No
Yes
Yes
12
8,679
NYSE
96
Gold
Canada
B
BASF
($98; BASFY)
90.1
None
No
No
No
2
99
Pink †
99
Divers.
Chemicals
Germany
A
Covidien
($54; COV)
26.8
Qtly.
Yes
Yes
Yes
21
4,103
NYSE
91
Health-Care
Equip.
Ireland
A
Komatsu
($31; KMTUY)
30.2
Qtly.
No
No
No
1
97
Pink †
94
Const./Farm
Mach.
Japan
None
Nippon Tele.
($24; NTT)
63.4
Qtly.
No
Yes
No
1
421
NYSE
94
Int. Telecom
Svcs.
Japan
A
Novartis
($62; NVS)
141.7
Qtly.
No
No
Yes
4
4,104
NYSE
74
Pharmaceuticals
Switzerland
B
Novo Nordisk
($127; NVO)
73.4
Qtly.
No
No
No
3
261
NYSE
77
Pharmaceuticals
Denmark
B
SAP
($61; SAP)
72.3
Qtly.
No
No
No
17
1,555
NYSE
83
Application
Software
Germany
B
Siemens
($137; SI)
120.5
Qtly.
No
No
No
4
790
NYSE
86
Ind.
Conglomerates
Germany
None
Suncor Energy
($40; SU)
63.8
Qtly.
No
No
No
9
6,230
NYSE
95
Integrated
Oil & Gas
Canada
None
Teva Pharma.
($49; TEVA)
44.1
Qtly.
No
Yes
Yes
24
6,580
NASDAQ
93
Pharmaceuticals
Israel
None
Total
($57; TOT)
128.4
Qtly.
No
No
Yes
5
3,303
NYSE
94
Integrated
Oil & Gas
France
None
Toyota Motor
($84; TM)
131.1
Qtly.
No
No
No
3
734
NYSE
31
Auto
Manufacturers
Japan
C
Volkswagen
($38; VLKAY)
55.7
None
No
No
No
1
93
Pink †
100
Auto
Manufacturers
Germany
A
Notes: GAAP is U.S. generally accepted accounting principals.    Quadrix scores are percentile ranks, with 100 the best.   
† Trades on the Pink Sheets, an over-the-counter market where stocks are not required to meet Securities and Exchange Commission requirements.

 

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