Kiplinger foreign stocks are too cheap to ignore.
Foreign stocks are simply too cheap to ignore. What’s more, when the outlook is dim, as it is for foreign economies, just a little good news can ignite a new bull market.
How cheap are foreign stocks? The Leuthold Group, a Minneapolis-based investment-research firm, computes price-earnings ratios based on “normalized” earnings-which it defines as average earnings over five years-to strip out some of the short-term hills and valleys from corporate results.the S&P 500 trades at a rich 21 times normalized earnings. But foreign developed stocks change hands at just 15 times earnings, and emerging markets fetch only 10 times earnings. Price-earnings ratios computed using other methods provide similar results. Foreign developed and emerging-markets stocks are also cheap according to other measures, such as dividend yield and price to book value (assets minus liabilities).
So the US bull market is done for now. And there is a lot of pain in Foreign economies around the globe. But, if you like the blood in the streets approach to investing now is the time to look at cheap foreign stocks.
Picking Foreign Stocks
Why you might like to Buy Foreign Stocks is for the dividends. Dividend.com notes the high yield on selected foreign stocks. They note 5 foreign stocks yielding over 4.5%.
The dividend.com foreign dividends stock page tracks companies that are based outside the United States but have shares that trade on US exchanges. These shares are called ADRs (Dividend yields are much higher abroad. Theoretically, developed countries should have higher yields than emerging markets, as they have more companies that have matured in their respective industries and are thus declaring higher payouts. This holds true in most cases: Australia tops the list with the highest yield, while Canada, the United Kingdom, and Italy also have higher yields. American Depository Receipts).
Read the article for the examples but these are good reasons why you should buy foreign stocks.
Exchange Rate Risk
When you buy foreign stocks via American Depositary Receipts you pay for your stock in dollars and that is how you receive dividend payments. However, the original stock and dividends are denominated in the home currency of the country. The second company on the Dividend.com list is Canadian. Five years ago the Canadian dollar was on a par with the US dollar. Today you need about $1.30 Canadian for each greenback. That also comes out to a 30% drop in the value of your dividends. Stocks denominated in major currencies such as the yen, euro, British pound, Swiss franc, Canadian dollar and Australian dollar are subject to mild to moderate exchange rate risk. But currencies such as the Brazilian real and Russian ruble are risky. If you choose to invest in stocks in these countries you need to keep track of their economies and exchange rates or you could be burned.
