Some of the brightest spots in today's dreary investment climate lie beyond our borders, but they're not out of reach. Stocks of some 2,200 foreign companies trade in the U.S., either directly, as with Canadian shares, or as American depositary receipts. ADRs are bank-created financial instruments that represent ownership in a foreign company. Either way, the trading is in U.S. dollars, with U.S. stock symbols and through domestic brokerages.
Global investors say the best opportunities are in small-to-midsize companies with market caps below $10 billion. One in that range is Irish airline Ryanair (RYAAY ). Its ADRs on Nasdaq have taken off. "This company has cloned Southwest Airlines' (LUV ) business model in Europe, and it has been fantastically successful," says Svein Backer, a portfolio manager at Driehaus International Growth Fund. "The goal is to offer travel 40% cheaper than competitors and use secondary airports instead of hubs."
Even with the drop in air travel last fall, Ryanair enjoyed 30% growth in passengers and 27% growth in earnings for 2001. Analysts expect earnings to grow 21.5% per year over the next five years. True, with a price-earnings ratio of 27 based on estimated profits for the fiscal year ending Mar. 31, 2003, it's not cheap, but good growth companies rarely are.
You can also make money in a consolidating industry. That's the lure of small-to-midsize Canadian oil companies, says Richard Pell, who runs Julius Baer International Equity Fund. He thinks major oil companies in search of replacements for declining reserves could acquire such businesses. Pell's top pick: Canadian Natural Resources (CED ), that nation's second-largest gas producer. It sells at a 12 p-e, about the cheapest of the Canadian exploration and production companies.
Bargains may still be found in emerging markets, even though they've been on a roll. Value investor John Spears of Tweedy Browne Global Value Fund likes Mexico's PanAmerican Beverages (PB ), the largest soft-drink bottler in Latin America. Although much of its business comes from selling Coca-Cola (KO ), it trades at a 2002 p-e of 14, while Coca-Cola trades at 31. Another emerging opportunity is China Mobile (CHL ), China's largest cell-phone service provider. "China has a huge potential market for cell phones, since land lines for traditional phones are scarce," says money manager Gary Bergstrom of Acadian Asset management. Last year, the company had a 54% jump in subscribers, to 69.6 million, and a 55% increase in profits. It has a 2002 p-e of only 15.
If you prefer blue chips, Christopher Wolfe, equity strategist at J.P. Morgan's private bank, recommends Swiss pharmaceutical giant Novartis (NVS ). The p-e is a modest 22 based on expected 2002 earnings. That's nearly a third below the 31 p-e for the drug industry. The stock has suffered from sluggish revenue growth, but Wolfe says upcoming launches of new drugs to treat eczema, osteoarthritis, asthma, and bone cancer should bolster sales.
Those diseases have no borders, and patients won't care which country relief comes from. Investors with ailing portfolios might take the same attitude.
By Lewis Braham