Best International Companies to Own: 2024 Edition

Investors from almost every part of the world exhibit a certain amount of home bias: the tendency to prefer domestic equities to international ones. This makes sense. Investors are likely more familiar with these brands and consequently are more comfortable putting their money toward them.

But in today’s investing world “adding international exposure is one of the first steps toward a diversified portfolio,” according to Morningstar portfolio strategist Amy Arnott. If, for example, the US dollar weakens, exposure to European or Asian equities can soften the impact.

With that in mind, how can stock investors tackle international investing?

First, it’s important to remember that at Morningstar, we don’t view investing through the lens of daily price movements or hot tips. We see owning a single stock as similar to owning a small part of the company or the underlying business itself.

Consider the amount of effort we devote to researching and comparing options before buying a car. It tends to be a lot, and it tends to work out well for our needs, exceeding expectations and providing a reliable form of transportation. This is the same approach we take to buying a stock.

One of the best ways to identify high-quality companies is by checking out the Morningstar Economic Moat Rating, which assesses a company’s competitive advantage. The term “economic moat” was coined by Warren Buffett, who said, “The key to investing is … determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”

We used the moat rating as a starting point to compile a list of the best companies you can own. As the best companies in our coverage, they have wide economic moat ratings, the strength of their competitive advantages is either steady or increasing, they have predictable cash flows, and they allocate their capital effectively. (You can learn more about this methodology here.)

Here are the 35 companies based outside of the United States, but available to US investors, that made the cut.

Industrials is the most represented sector on this list with 10 companies. Consumer defensive and healthcare are close behind with nine and seven, respectively.

A note of caution: This list is not a call to action for you to buy all these companies immediately. Rather, it is a list of stocks you should keep an eye on and look for attractive entry points. Even the greatest company can be a bad investment if you overpay, and many firms on this list are currently overvalued.

That said, we note two of the stocks on the list that earned Morningstar Ratings of 5 stars as of April 19, 2024, meaning they are undervalued according to Morningstar‘s fair value estimates.

They are Switzerland-based Roche Holding RHHBY, a global pharmaceutical and diagnostic company, and China-based Yum China Holdings YUMC, the country’s largest restaurant chain. Here’s what our analysts have to say about these two undervalued names from the list.

Roche Holding

“We think Roche’s drug portfolio and industry-leading diagnostics conspire to create maintainable competitive advantages. As the market leader in both biotech and diagnostics, this Swiss healthcare giant is in a unique position to guide global healthcare into a safer, more personalized, and more cost-effective endeavor. Strong information sharing continues between Genentech and Roche researchers, boosting research and development productivity and personalized medicine offerings that take advantage of Roche’s diagnostic expertise.

“Roche’s biologics focus and innovative pipeline are key to the firm’s ability to maintain its wide moat and continue to achieve growth as current blockbusters face competition. Blockbuster cancer biologics Avastin, Rituxan, and Herceptin are seeing strong headwinds from biosimilars. However, Roche’s biologics focus (more than 80% of pharmaceutical sales) provides some buffer against the traditional intense declines from small-molecule generic competition. In addition, with the launch of Perjeta in 2012, Kadcyla in 2013, and Phesgo (a subcutaneous coformulation of Herceptin and Perjeta) in 2020, Roche has somewhat refreshed its breast cancer franchise. Gazyva, approved in CLL and NHL and in testing in lupus, as well as new bispecific antibodies Columvi and Lunsumio will also extend the longevity of the Rituxan blood cancer franchise. Roche’s immuno-oncology drug Tecentriq launched in 2016, and we see peak sales potential above $5 billion. Roche is also expanding outside of oncology with MS drug Ocrevus ($9 billion peak sales) and hemophilia drug Hemlibra ($6 billion peak sales).

“Roche’s diagnostics business is also strong. With a 20% share of the global in vitro diagnostics market, Roche holds the number-one rank in this industry over competitors Siemens SIEGY, Abbott ABT, and Ortho. Pricing pressure has been intense in the diabetes-care market, but new instruments and immunoassays have buoyed the core professional diagnostics segment.”

—Karen Andersen, strategist

Yum China Holdings

“The covid-19 pandemic provided Yum China the opportunity to accelerate store openings at more favorable lease terms. The company added more than 3,700 locations from 2020 to 2022, equivalent to a 36% increase from 2019. Now that China’s zero-covid-19 policy is in the rearview mirror, we expect these new restaurants to not only deliver significant incremental revenue but also be accretive to the overall margins. Over the next several years, we expect Yum China to speed up new unit openings. We share management’s view that there remain plenty of expansion opportunities in lower-tier cities—evidenced by nearly 1,200 Chinese cities still with no KFC presence.

“Over the longer term, we believe there are several opportunities for Yum China to gain a share in the fragmented, USD 700 billion Chinese restaurant market. In China, chains account for roughly 18% of restaurant spending compared with 61% in the US and 34% across the globe. Our conviction in rising fast food penetration is underpinned by three long-term secular trends: longer working hours for urban consumers; rapidly rising disposable income; and ever-smaller family sizes. Coupled with strong brand recognition and an unrivaled supply chain, Yum China is set to be the prime beneficiary of growing Chinese fast-food spending. We’re also optimistic about Yum China’s various top-line drivers, including value platforms, menu innovations, new restaurant formats, enhanced digital marketing efforts (underscored by 300 million loyalty program members), unrivaled delivery capabilities, and nascent brand expansion potential in Lavazza, Taco Bell, and Huang Ji Huang.

“At its 2021 investor day, Yum China management committed a five-year budget of USD 1 billion-USD 1.5 billion to technology and digital development. We believe the company is beginning to reap the fruits of its investments. We believe a significant amount of cost savings will be passed through to the bottom line simply because these investments at scale are not likely to be replicated by competitors. This underpins our forecast for operating margin expansion over the long term.”

—Ivan Su, senior equity analyst

Editor’s Note: This article is based on the 2024 edition of Morningstar’s Best Companies to Own. Find the full list of companies and read about our selection methodology.