Invest Internationally—in the US
12/03/2007 12:00 am EST
Richard Band, editor of Profitable Investing, samples the international markets by investing at home—leaving behind many of the risks that come with buying foreign stocks…
International investing is all the rage these days—and for good reason. Over the past four years or more, many global stock markets have left New York in the dust. Since March 2003, the Dow Jones Euro STOXX 50, an index of 50 large European companies, has soared 209% (in dollars). Over the same period, our home-grown Standard & Poor’s 500 index has tacked on just 85%. Emerging markets, if you can imagine, have performed even better. From the same starting point in March 2003, the MSCI Emerging Markets Index (in dollar terms) has boomed 360%, one of the great stock market pole vaults of the past century.
So why don’t I urge you to dump your entire wad into foreign stocks and mutual funds? At some point, possibly soon, foreign economies (many of which depend heavily on exports) will react to the slowdown in orders from their biggest customer, the United States. That’s when you’ll be glad you own some US multinationals that can take advantage of the weak dollar by shipping goods overseas. Foreign companies that try to send goods here, with price tags inflated by “hard” currency, will face a tougher go of it.
Another, though smaller, benefit of using American stocks to roam the world has to do with dividends. Most foreign governments impose a withholding tax on dividends paid to US investors. You can recoup the tax if you hold a foreign stock in a taxable account, but not in a retirement account. Thus, multinational US companies provide an extra measure of tax efficiency if you’re investing for retirement.
If you’ve got extra cash jingling in your pocket, consider adding to the following (or initiating a position if you haven’t climbed aboard yet):
Accenture (NYSE: ACN). This management consulting and technology-outsourcing firm employs 170,000 people in 49 countries—a true global behemoth. In the most recent fiscal year (ended August 31), a solid majority of ACN’s revenues came from overseas, magnifying the company’s profits translated into dollars. Earnings per share for the year, after adjusting for one-time items, exploded 22%. Another double-digit gain seems likely in 2008.
Besides ACN’s virtually debt-free balance sheet, I’m delighted with the company’s $2 billion annual free cash flow (“free” after all capital spending is deducted). Accenture is making the most of its cash hoard by aggressively buying back stock, having just announced a fresh $3 billion repurchase program in late October. For an organization with a total market value of about $22 billion, that’s a big deal. Buy up to $41.