Looking Abroad for Quality Bargains
Six foreign stocks that are selling at compelling valuations.
Morningstar's Wide Moat Focus strategy targets the cheapest, highest-quality stocks in our coverage area. But sometimes "cheap" is relative concept. True, the strategy targets the most undervalued stocks in its universe based on price/fair value, but that universe--the Morningstar US Market Index--has gained more than 16% per year for the trailing five-year period.
Meanwhile, the MSCI ACWI Ex USA has returned only half of that amount. Some of the relative underperformance of foreign stocks over the past few years is due to currency translation effects; in other words, the stocks have performed well in their own markets, but when translated to U.S. dollars the strength of the greenback relative to the other currencies has the effect of muting gains, sometimes significantly so. But the five-year performance between the local-currency-denominated index and the USD-denominated index are very close, gaining 8.2% and 7.3% per year through Sept. 26, respectively. This argues that foreign markets may not be as overvalued as the U.S. market, and there may be some bargains to be found for patient investors.
Karen Wallace does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.