Frances Dydasco watched her highly rated foreign stock fund plunge 24.9% through Dec. 14, as stocks overseas fell further than U.S. issues. Next year could be another challenging one, but Dydasco hopes to avoid hitting the rocks again by an extra focus on quality.
She and her fellow managers at the T. Rowe Price International Discovery Fund will search for companies blessed with high returns on capital and superior products or market-share gains. She also wants them to have the strength to finance their own growth. Tech companies in particular will be scrutinized. One such pick is Tomen Electronics Corp., a Japanese distributor that helps foreign tech businesses break into the historically closed Japanese market. Partner Communications Co. (PTNR), an Israeli cell-phone outfit, should prosper as it targets high-end users and adds premium features.
Pharmaceuticals are another area of concentration. Dydasco thinks Galen Holdings PLC (GALN), based in Northern Ireland, could boost earnings 30% a year by buying up neglected products from drug companies and remarketing them, and also by developing its own treatments. Its new hormone-replacement device is expected to win U.S. Food & Drug Administration approval next year. Icon PLC (ICLR) of Ireland runs clinical tests for large drug companies and could see 15% to 20% earnings growth in 2002 and 2003, Dydasco says.
Several stocks for the new year play off consumer spending. One is Japanese cosmetics company Kose Corp., which has built a strong business with young, fashionable Japanese women through savvy marketing. Another, Sweden's Observer AB, analyzes media coverage to spot trends and sells the info to companies eager to market their products. Germany's Medion works with European retailers to find and import consumer electronics. France's Neopost is a fast-growing manufacturer of machines used to stamp postage on mail. They're not sold to consumers--but then again, who gets the mail?
Two other picks are based on changing cultural attitudes. "In the States, it's pretty normal for people to have five credit cards and to run up balances. In Japan, that has just not been the case," Dydasco says. But Japanese attitudes are changing--hence her recommendation of Aiful Corp., a consumer-finance company. Another choice is Corporacion Mapfre, a Spanish life insurer. Spaniards, Dydasco explains, "don't buy life insurance because they kind of think it hastens their death." Mapfre's business will liven up, she predicts, as Spaniards shed their superstition. By Carol Marie Cropper