For the first time in a long time, the good 'ole US stock market was one of the top performers this past year. And it remains a top investment choice as we begin the New Year.
Although far from robust, the US economy should provide 'good enough' growth to drive healthy earnings growth in 2012. And given that the S&P trades at just 12X earnings, stocks look very attractive, especially next to cash or bonds.
Meanwhile, Europe is facing a mild recession at best as it implements painful but necessary austerity measures, and Japan appears stuck in a perpetual 'Lost Decade'. And the former untouchable BRICs just posted their second consecutive year of stock market underperformance as their economies all face mounting issues.
But don't write off international stocks completely in 2012.
Price Doesn't Always Equal Value
During periods of heightened fear in the markets, stocks around the globe tend to move in one direction: down. Europe, Asia and Latin America all got hit the hardest in 2011 as investors fled to the relative safety of the US, buying up blue chips, the US dollar and Treasuries.
And it's exactly when price decouples from value that creates the best opportunities for value investors. The often quoted but seldom followed advice from Warren Buffett is to "be greedy when others are fearful". In this case, that means investing in companies headquartered in the hardest-hit markets of 2011.
4 International Stocks for 2012
Brazil - Brasil Telecom (BTM)
People used to joke that Brazil was "the country of the future, and it always will be". But it looks like this bustling Latin American country of 195 million may finally be arriving. Although Brazil's economic growth in 2012 may not be quite as robust as in years past, where do you think the economy will be will be five or ten years from now? My guess is significantly higher.
And there to capitalize on that growth will be Brasil Telecom, which provides telecommunications services throughout the country. This unloved stock trades at just 4x 2012 EPS and 0.2x book value. Oh, and it pays a dividend that yields a solid 3.0%.
France - TOTAL (TOT)
It seems like everyone wants to short Europe these days. Buying shares of this French oil and gas company would fly in the face of conventional wisdom. And that's just fine for the contrarian.
For the first 9 months of 2011, sales were up 15%, EPS up 16% and cash from operations up 11%. But with shares trading at just 7x 2012 consensus EPS, it seems like investors have priced in a pretty big economic slowdown in 2012.
If the global economy isn't as bad as feared in 2012 and oil prices don't crash, expect another year of solid results for this European company. And that could mean big gains for this discounted stock. In the meantime, investors will be rewarded with a hefty 5.1% dividend yield.
Japan - Orix Corporation (IX)
Remember when Japan was going to take over the world? Well, two 'Lost Decades' later, and the country is barely on investors' radar screens these days (look at all the 'Asia ex-Japan' funds out there). But this has caused some strong Japanese companies to be overlooked.
Formed in 1964, Orix Corporation is a diversified financial services company operating in 6 segments: Corporate Financial Services (15% of revenue), Maintenance Leasing (9%), Real Estate (25%), Investment & Operation (8%), Retail (28%), Overseas Business (15%). Unlike some of its former competitors, Orix managed to stay profitable throughout the financial crisis and is expected to grow EPS at a healthy clip over the next few years.
Nevertheless, shares trade at just 0.5x book value and 8x forward earnings. And its PEG ratio is an attractive 0.65 based on a long-term growth rate of 12.3%.
Russia - Mechel OAO (MTL)
Arguably the least favorite of the BRIC countries the last couple of years has been the 'R': Russia. In fact, the Market Vectors Russia ETF (RSX) is down more than 40% since the beginning of 2008. Although the country still faces many challenges, Russia is expected to see healthy economic growth in 2012.
And many solid Russian companies have gotten their teeth kicked in as investors shun the country. Mechel is one of those companies. It is the largest coking coal producer and sixth-largest steel producer in Russia. Through the first 9 months of 2011, revenue was up +38%, with operating income up +40%.
Despite this, shares trade at just 3x the 2012 Zacks Consensus Estimate. It's also trading at only 0.7x book value. These multiples could rapidly expand if the low expectations for the global economy improve. Another potential catalyst: the Russian presidential election in March.
The Bottom Line
Considering how awful 2011 was for international stocks, the US had a relatively good year. And the US is still among the favorites to outperform this year. But don't count out foreign stocks completely in 2012. These 4 international stocks look like bargains.
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