Look Abroad for More Profitable Value Opportunities
These noteworthy stocks offer a compelling source of foreign exposure.
Our Picks
Following a strong runup in equities, Morningstar's market fair value graph indicates that stocks, in aggregate, are looking slightly overvalued right now.
Yet some bargain-hunting fund managers are seeing notable opportunities beyond the United States.
In their most recent shareholder letter, Longleaf managers Mason Hawkins and Staley Cates remarked that Longleaf International (LLINX) features a lower cash position and a more compelling price/value ratio than Longleaf's two domestically focused funds. Global fund manager David Winters of Wintergreen Fund echoed this sentiment in a recent video interview.
To unearth some bargain-priced, high-quality international equities, we used the Premium Stock Screener to home in on foreign firms with Morningstar Ratings for stocks of 4 or 5 stars. Garnering a high star rating means that a company is trading at a meaningful discount to our analysts' estimates of its fair value. To ensure that companies on our list aren't just trading cheaply but also have some level of sustainable competitive advantage, we searched for those with either narrow- or wide-moat stocks. The screener turned up more than 25 results, three of which we highlight below. Click here to replicate this screen yourself.
Novartis (NVS)
Drugmaker Novartis is a leader among its peers--not only in pumping out a steady pipeline of new drugs, but in running a diverse business that encompasses branded and generic pharmaceuticals, diagnostics and vaccines, consumer products, and a foothold in the eye-care industry with its recent acquisition of Alcon. Like its peers, Novartis isn't completely immune to the considerable amount of competition from generic drug companies or increased pricing and political pressures to lower drug costs. But its limited exposure to patent expirations and the diversity of its product line undergird Morningstar analyst Damien Conover's optimism for the firm's favorable near- and long-term earnings growth potential.
NTT DoCoMo 
NTT DoCoMo, the largest wireless telephone operator in Japan, has been a leader in introducing cutting-edge technology to Japan's masses; the firm was the first to launch 4G wireless service in Japan, for example. Lately, the firm has been emphasizing cost-cutting in an effort to boost its return on capital, increase dividends, further its research-and-development efforts, and make acquisitions. Morningstar analyst Allan Nichols notes that DoCoMo has been seeing declining revenue as wireless penetration nears saturation, but he said that the firm's growth prospects look promising on the heels of the 4G introduction. Nichols also likes that the company boasts a healthy balance sheet with minimal debt, strong cash flows, and an impressive 3% yield.
Toyota Motor (TM)
Despite production disruptions resulting from the March 9 earthquake, a recall crisis in early 2010, and an anemic economic environment, Toyota remains one of the best positioned in the auto industry. Its Lexus luxury brand and the midsize Camry line continue to be top-sellers in the United States, and production has expanded to the emerging markets of Brazil and Russia, which should help lift revenue and offset sales declines in the U.S. Given Toyota's robust product line and manufacturing expertise, Morningstar analyst David Whiston believes that the firm has a decisive edge over its competitors.
Data as of May 9, 2011.