Skip to Content
Stocks

3 Undervalued Foreign Stocks

As a whole, non-U.S. markets don't look cheap, but there are some values.

Note: This article is part of Morningstar's May 2015 International Investing Week special report.

There isn't much value to be found in equity markets around the world right now. Valuations look stretched virtually everywhere you look, according to Morningstar data. Asian shares are trading at an 18.4% premium, while European markets look 4.6% overvalued. Comparatively, U.S. shares--1.2% overvalued--look pretty good. Looking at these aggregate numbers, individual-stock investors may be tempted to not put in the effort to look abroad today.

But that could be a mistake. Given that the market, as a whole, isn't providing a ton of values, investors need to be focused on finding individual stocks that are trading at a reasonable discount to fair value and make sure they're not overpaying for stocks that are priced to perfection. Limiting your investable universe makes it that much harder to find these rare undervalued companies.

Investing outside the U.S. is not necessarily a daunting task. Many foreign firms are global franchises that will be familiar to U.S-based investors. And the basic principles you use when investing in U.S.-based companies are no different from the ones you would use when looking for investments around the world. You seek businesses that have dug economic moats--that is, they possess durable competitive advantages stemming from, for example, a network effect or some intangible asset. These firms should be able to fend off competitors and earn an economic profit for years to come. Valuation matters, too, of course. You need to find firms that are trading well below your estimation of its worth so that there is some margin of safety if something were to go wrong.

To find some of these high-quality non-U.S. firms trading at a discount, we used Morningstar's

. We looked for firms that had either a narrow or wide economic moat and that carried a Morningstar Rating of 4 or 5 stars. You can run the screen yourself by clicking

. Below are three companies that passed.

From the

From the

From the

Data as of 5/19/2015

More on this Topic

Sponsor Center