The 10 Best International Stocks to Buy

Should investors buy international stocks?

For many, it’s a complicated question. After all, investors often feel more “in-the-know” about companies domiciled in their home markets, and the U.S. market is less prone to corporate governance problems and political risk than some non-U.S. markets. On top of that, U.S. companies are generating more of their revenue outside of the U.S. than ever before, providing U.S. stock investors with significant access to global growth. And international stocks have badly underperformed U.S. stocks over time: The Morningstar Global Markets ex-U.S. index has lagged the Morningstar US Market Index during the trailing three-, five- and 10-year periods by a sizable margin.

Yet many would argue that investors who only buy U.S. stocks are limiting their opportunity set: There are many well-run companies across the globe with compelling stories and undervalued stock prices. For investors with long time horizons, international stocks may find a place on their lists of stocks to buy.

What Are the Best International Stocks to Invest In?

When it comes to finding the best international stocks to buy, Morningstar suggests favoring the stocks of companies with durable competitive advantages, or economic moats. These companies should be able to fend off competition and outearn their costs of capital for years to come. Then, buy the stocks of these companies when they’re trading below what they’re worth.

If this formula sounds familiar, it should: It’s the same approach Morningstar recommends when it comes to finding the best U.S. stocks to buy, too.

We’ve turned to the Morningstar Global Markets ex-U.S. Moat Focus Index to come up with a short list of undervalued international stocks to buy.

10 Best International Stocks to Buy

Here are the 10 non-U.S. companies from the Morningstar Global Markets ex-U.S. Moat Focus Index whose U.S.-traded shares are trading at the deepest discounts to our fair value estimates as of Oct. 20, 2023.

1. Tencent Holdings TCEHY
2. Bayer AG BAYRY
3. Millicom International Cellular TIGO
4. WPP PLC WPP
5. Lloyds Banking Group LYG
6. Fresenius Medical Care AG & Co. FMS
7. Bayerische Motoren Werke AG BMWYY
8. Anheuser-Busch InBev SA/NV BUD
9. Swatch Group AG SWGAY
10. Imperial Brands IMBBY

Here’s a little bit about each of these cheap international stocks from our analysts, along with some key Morningstar metrics. All data is as of Oct. 20, 2023.

Tencent Holdings

• Morningstar Price/Fair Value: 0.40
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide
• Industry: Internet Content & Information
• Country: China

Tencent Holdings tops our list of the best international stocks to buy; the undervalued stock trades 60% below our $90 fair value estimate. Our fair value estimate assumes a consolidated revenue compound annual growth rate of 13% for 2022-27, including almost 20% growth for the fintech and business services segment, says Morningstar senior analyst Ivan Su.

Over the past decade, Tencent has capitalized on the industry shift toward mobile gaming. The firm owns some of the world’s most popular titles, like Honor of Kings and PUBG Mobile. To date, games remain Tencent’s primary monetization model—as we estimate more than 40% of the group’s operating income comes from this segment. Tencent should continue to leverage its unrivaled access to user data and financial capital to create innovative, high-quality, and long-cycle games with a mobile-first approach.

Outside of games, other key businesses under the Tencent empire include WeChat, QQ, WePay, music streaming, on-demand cloud, and a host of other ventures. We see a tremendous amount of untapped value in Wechat, as it continues to increase monetization through advertising and acts as a major gateway for other internet services (payment, delivery, insurance, and so on) looking to access the 1.2 billion-plus Wechat users.

Given WeChat’s huge and engaged user base, advertisers will continue to find it one of the top marketing channels.

While games and advertising will remain Tencent’s core cash flow driver, we think the firm’s investments in other areas (cloud storage, business services, enterprise software, and so on) also offer long-term value-creation potential.

Bayer AG

• Morningstar Price/Fair Value: 0.49
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Drug Manufacturers—General
• Country: Germany

Bayer stock looks undervalued, trading 51% below our $22.50 fair value estimate. Sales in the most recent quarter were dragged down by competitive pressures in its crop business. However, results were steady for the company’s drug group, and we expect strong new drug launches to offset maturing older drugs, says Morningstar director Damien Conover.

In the healthcare division, Bayer’s strong lineup of recently launched drugs and solid exposure to biologics should support steady long-term cash flows. Bayer’s hemophilia franchise and key ophthalmology drug Eylea are biologics. While competition is increasing in hemophilia and in eyecare, the manufacturing complexity of these drugs deters generics from entering the market. Further, strong demand for cardiovascular drug Xarelto should continue to drive growth, but the drug’s approaching patent loss in 2026 will likely create some growth headwinds.

Bayer’s healthcare segment also includes a consumer healthcare business with leading brands Aspirin and Aleve. Brand recognition is key in this segment, as evidenced by the company’s iconic Aspirin, which continues to produce strong sales even after decades of generic competition.

In addition to healthcare, Bayer runs a leading crop science segment, which includes crop protection products (pesticides, herbicides, fungicides) and the fast-growing plant and seed biotechnology business. The acquisition of Monsanto has significantly expanded Bayer’s competitive position in this industry. On the negative side, the acquisition increased Bayer’s exposure to litigation around potential side effects from glyphosate use. While many studies have shown glyphosate use to be safe, some reports of linkage to cancer drove large class-action legal cases against Bayer and led to a legal settlement of over $15 billion.

Millicom International Cellular SA

• Morningstar Price/Fair Value: 0.50
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Telecom Services
• Country: Luxembourg

Millicom International Cellular is another cheap international stock, trading 50% below Morningstar’s $30 fair value estimate. Profitability has been under pressure as revenue growth has lagged inflation and the firm spends on restructuring, says Morningstar director Michael Hodel. But we expect Millicom to take steps in the coming quarters to improve its overall position, he adds.

Millicom is a collection of telecom businesses serving nine countries in Latin America. Economic and political challenges in certain markets, combined with a weak Colombian peso, have hindered recent financial results. However, we expect that continued smartphone and broadband adoption will allow the firm to generate solid growth and cash flow in the coming years.

Millicom’s subsidiaries have provided wireless service in Guatemala, El Salvador, Honduras, Bolivia, and Paraguay since the early 1990s, giving it the largest market share in most of these countries. More recently, the firm has acquired wireless operations in Panama, Nicaragua, and Colombia. In addition to the wireless business, Millicom is investing heavily, both organically and through acquisitions, to build cable and fiber infrastructure, carving out solid share in the fixed-line market as well.

In Guatemala, which is now the firm’s most important market following the buyout of minority investors, it is the clear market leader and competes almost exclusively against America Movil. Other markets with only one substantial national competitor include Panama, Honduras, Nicaragua, and Bolivia.

Wireless penetration in these markets is already high, but data services still provide significant growth opportunities. As demand for high-quality connectivity grows, we expect Millicom’s financial performance will improve nicely in the coming years.

WPP PLC

• Morningstar Price/Fair Value: 0.52
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Advertising Agencies
• Country: United Kingdom

Advertising giant WPP is next on our list of the best international stocks to buy. Although cost-cutting in the technology sector has pressured ad spending this year, we’re expecting a turnaround, notes Morningstar senior analyst Ali Mogharabi. WPP shares trade 48% below our $40 fair value estimate.

WPP is the largest player in the advertising space, operating in more than 110 countries. We expect the firm to maintain its market-leading position as it generates competitive organic growth, continues to make acquisitions, and increases focus on the faster-growing emerging and overall digital ad markets.

We look for WPP’s acquisition growth strategy to continue, as the firm has consistently brought in smaller local ad agencies and quickly gained traction in other faster-growing international markets. Historically, WPP has also aggressively acquired larger players in the space such as Ogilvy and Grey. Consolidation within the advertising space has resulted in the Big Five companies (WPP, Omnicom, Interpublic Group, Publicis Groupe, and Dentsu) generating nearly 30% of the world’s total ad revenue.

We also expect WPP to continue acquiring and investing in the growing digital advertising space, which will help the firm remain competitive. Clients of WPP and its peers are allocating more ad dollars toward below-the-line digital campaigns, creating growth opportunities for WPP and other players in the space. Some of WPP’s acquisitions within the digital ad market include Taylor Nelson (which became part of Kantar, which was sold in 2019) and AKQA (which is now combined with Grey), along with investments in Essence and AppNexus (which generated a significant return for WPP after being acquired by AT&T in 2018).

Lloyds Banking Group

• Morningstar Price/Fair Value: 0.52
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Industry: Banks—Regional
• Country: United Kingdom

The only bank on our list of the best international stocks to buy, Lloyds Banking Group is seeing net interest income and other income offset higher operating expenses due to investments and inflation, observes Morningstar Niklas Kammer. The cheap stock trades 48% below our fair value estimate of $3.80.

Lloyds is a pure U.K. banking play, with 95% of its assets based domestically. Since its massive restructuring, which started in 2011, the bank has emerged as a low-risk domestic retail and commercial bank. It has shed about GBP 190 billion in runoff assets and GBP 200 billion in risk-weighted assets and has significantly reduced its dependence on wholesale funding. Today, Lloyds operates one of the strongest retail franchises in the United Kingdom.

Mortgage pricing is under pressure in the U.K. as challenger banks look to gain scale and ring-fencing regulations increase liquidity in the market. Although mortgages constitute the lion’s share of loans to customers (66%), Lloyds has delivered robust net interest margins, speaking to its large deposit funding base and policy to prioritize margins over volume. Additionally, as competitive pressure in this market segment has risen, Lloyds has shifted its focus to building out its financial planning offerings, beefed up its credit card loan book, and targeted loan growth in small and medium-size enterprises. This should allow Lloyds to offer a stronger value proposition to its clients as open banking initiatives take hold.

Lloyds is looking to add more noninterest-based income streams under its new strategy, which overall, is positive in our view. In the meantime, Lloyds benefits disproportionally from the interest-rate-hike cycle kicked off by the Bank of England.

Fresenius Medical Care AG & Co.

• Morningstar Price/Fair Value: 0.55
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Medical Care Facilities
• Country: Germany

Fresenius Medical Care stock recently dropped on news that a kidney-related trial of Novo Nordisk’s obesity drug Ozempic slowed the progression of kidney disease in patients with chronic kidney disease and diabetes. Morningstar senior analyst Julie Utterback notesjewelry that the news isn’t straightforward and that these new drugs might help more chronic kidney patients survive to dialysis. We think this undervalued international stock is worth $32 per share.

Fresenius Medical Care treats end-stage renal disease patients through its dialysis clinic network, medical technology, and care coordination activities. Its strengths in these related areas help Fresenius maintain the leading global position in this market. After pandemic conditions recede, we expect the company to benefit from decent demand in developed markets, such as the U.S., and even faster expansion in emerging markets, such as China, in the long run. With global ESRD patient growth expected to remain in the low to mid-single digits in the long run, we expect top-line growth for Fresenius to grow at a similar pace during the next five years, if it can get past current inflationary and other challenges.

The company’s position as the top dialysis service provider and equipment maker in the world remains symbiotic and unique. Fresenius’ experience operating over 4,100 dialysis clinics around the globe (about 1,000 more than the next-largest player, DaVita) gives it insights into caregiver and patient needs to inform service offerings and product innovation. Fresenius uses clinical observations to develop and then manufacture even better technology to treat ESRD patients. It outfits all its clinics with its own brand of equipment and consumables, which has margin implications related to system costs and operating efficiency for staff. However, other dialysis clinics appreciate Fresenius’ technology as well, and Fresenius claims about 35% market share in dialysis equipment/consumables while serving only 9% of ESRD patients through its global clinics. Especially telling, main rival DaVita remains one of Fresenius’ top product customers.

Bayerische Motoren Werke AG

• Morningstar Price/Fair Value: 0.57
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Auto Manufacturers
• Country: Germany

The stock of German automaker BMW looks cheap, trading 43% below our $58 fair value estimate. Despite higher sales volume, automotive revenue rose a disappointing 5% during the most recent quarter, as favorable pricing and mix were offset by negative currency.

Because of the strength of its intangible assets, including brand and intellectual property, BMW has a narrow economic moat rating. Brand strength has enabled premium pricing across all of BMW’s products, while intellectual property supports the brand image with strong product execution, especially in powertrains.

BMW continues to outperform the overall car market despite uncertainties from the microchip shortage and is one of only a handful of automakers to which we assign an economic moat. As emerging-market consumers become wealthier, many will purchase luxury items for the first time. Given the aspirational nature inherent in the company’s brands, including BMW cars and motorcycles, Mini, and Rolls-Royce, as well as the growth potential from increasing wealth in developing markets, we believe the company will continue to reward investors with solid returns.

BMW has consistently produced vehicles that command premium pricing and generated revenue increases above global vehicle growth rates.

Anheuser-Busch InBev SA/NV

• Morningstar Price/Fair Value: 0.58
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Beverages—Brewers
• Country: Belgium

One of just four wide-moat companies on our list of the best international stocks to buy, Anheuser-Busch stock is cheap, trading 42% below our $90 fair value estimate. A boycott of the firm’s Bud Light brand hurt first-half results, but based on management comments, we think that further downside risk from the market mishap is probably limited, says Morningstar director Philip Gorham.

Anheuser-Busch InBev, or AB InBev, has been acquisitive, having made transformative deals for Interbrew and Anheuser-Busch, and more recently acquiring Grupo Modelo, Oriental Brewery, and SABMiller. Management’s strategy is to buy brands with a promising growth platform, expand distribution, and ruthlessly squeeze costs from the business.

Previous acquisitions have created a monster with vast global scale as well as regional density. AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators. Vast global scale, along with its monopolylike positions in Latin America and Africa give AB InBev significant fixed cost leverage and procurement pricing power. This plays out in the firm’s excess returns on invested capital and best-in-class operating and cash cycles, asset turnover ratios, and working capital management. AB InBev delays payments to trade creditors more than 20% longer than its closest rival Heineken, and its free cash flow conversion has been consistently higher than peers in recent years.

Central to the investment case are the deleveraging of the balance sheet and rebuilding of margins in Latin America. On deleveraging, some progress has been made. On the margin rebuild, we expect a reversion to mean in commodity costs and the U.S. dollar against other major currencies would go a long way to improving profitability.

Swatch Group AG

• Morningstar Price/Fair Value: 0.59
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Industry: Luxury Goods
• Country: Switzerland

Swatch Group experienced an improvement in sales and profitability during the first half of 2023. We’re keeping an eye on the company’s low-priced brand performance: We believe that smartwatches are close to full adoption, providing less of a competitive drag on the business, says Morningstar senior analyst Jelena Sokolova. We think this undervalued international stock is worth $21.30; it trades 41% below that.

The Swatch Group is the biggest vertically integrated Swiss watch manufacturer with 18 brands covering all price ranges, from entry to ultraluxury. Swatch-owned brands account for around 35% of Swiss watch exports, and the company supplies competitors with watch movements. Swatch Group’s luxury brands boast 100- to 200-year histories, iconic collections, and deep cultural heritage.

Most of Swatch’s brands (at price points below $10,000) benefit from a cost advantage through scale and a higher degree of production automation. Swatch’s diversification in terms of brands and price points helps it to avoid the pitfalls that come with extending brands into categories where they don’t strategically belong, and to potentially capture positive mix as consumers trade up.

We believe that the demand for high-end watches is not structurally impaired (around 50% of revenue), branded jewellery offers attractive upside for growth (around 8% of revenue from Harry Winston brand), while lower-priced watches (less than 20% of sales) could stabilize from a low base, once smartwatches reach maturity, which we expect to start materializing this year.

Imperial Brands

• Morningstar Price/Fair Value: 0.61
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Tobacco
• Country: United Kingdom

The final name on our list of the best international stocks to buy, Imperial Brands stock is 39% undervalued relative to our $34 fair value estimate. Although we don’t expect Imperial to grow returns on capital as quickly as some of its peers, we expect total return to be fairly attractive, because the stock is being priced at a level that undervalues the cash flows of the business, notes Morningstar director Philip Gorham.

CEO Stefan Bomhard unveiled a five-year strategic plan in 2021 that will concentrate Imperial’s investments geographically and on emerging categories that are likely to become the largest profit pools in the future. The plan essentially recognizes Imperial’s place in the marketplace—it is a fast follower, rather than a leader, in most markets. This makes Imperial a different investment proposition than its Big Tobacco peers, particularly Philip Morris International, which is investing in growth and moving away from the secular decline of the cigarette industry. Imperial, on the other hand, is likely to be the company more exposed to cigarettes in future, and although it should trade at a discount to its peer group, Imperial should remain a highly profitable and cash-generative business.

Under the new strategy, investment is focused on categories and geographies where Imperial has existing strengths, and where consumer demand is likely to be strong. Other markets, as well as the firm’s smaller brands, are being managed to maximize cash flow. In next-generation products, Imperial has exited vaping markets in which it has not gained traction, in order to target its investments on more profitable opportunities. In heated tobacco, it is shifting its geographic focus from Japan, where it has very limited share and distribution structure, to Europe, where it has pockets of large shares.

What is the Morningstar Global Markets ex-U.S. Moat Focus Index?

This quality-focused index is a subset of the Morningstar Global Markets ex-U.S. Index, a broad index representing 97% of developed-markets (excluding the U.S.) and emerging-markets market capitalization. Morningstar ranks the wide- and narrow-moat stocks in the broad index by lowest price/fair value to find the 50 cheapest wide- and narrow-moat stocks. These stocks represent the most compelling values among the global moat universe, according to Morningstar analysts.

How to Find More of the Best International Stocks to Buy

Investors who would like to uncover more undervalued international stocks to research further can do the following.

• Use our Morningstar Investor Screener tool to find the best international stocks according to your specific criteria. You can search for stocks based on their dividend yields, valuation measures such as price/earnings, and more. And then when you get to the results page, click on Manage Data Points and Columns, go to Stock Basics, and add Domicile to the list of columns; click Update. You can then review your list or download it to manipulate further.
• Browse Morningstar’s list of international stocks grouped by geographic region. Our regional lists include international stocks in Latin America, United Kingdom, Europe Developed, Europe Emerging, Africa/Middle East, Japan, Australasia, Asia Developed, and Asia Emerging.
• Those investors who’d rather invest in international stocks through a managed product can review our list of The Best International Stock Funds.