Five Foreign Blue Chips

Give your portfolio an international flavor.

From Kiplinger's Personal Finance magazine, January 2005

You don't have to be a globe-trotter to give your portfolio a foreign flavor. Hundreds of foreign stocks trade in the U.S., most as American depositary receipts. ADRs, which can represent one or more shares of a foreign stock, are priced in dollars, and their dividends are paid in dollars. Stick to ADRs traded on the New York Stock Exchange or Nasdaq and your companies will report results according to U.S. accounting rules. We think the companies that follow are good places to start.

After losing half their value between the spring and summer of 2004, Nokia shares are reviving but still sell for bargain prices. The Finnish wireless-phone maker was too slow to meet demand for clamshell handsets and built-in cameras. But by cutting prices and revamping its product lineup, Nokia (symbol NOK) is once again adding market share. The recovery is "a great signal" for investors to get back in, says Wendell Perkins, who runs JohnsonFamily International Value fund. At $17 (down from $63 in 2000), Nokia trades at 19 times estimated 2005 profits of 89 cents per share. It has $15 billion in the bank and its stock yields 2.1%.

Britain's HSBC Holdings began 140 years ago as the Hong Kong and Shanghai Banking Corp. Today, it operates in 76 countries, but its China and Asia-Pacific business -- which generates about 40% of profits -- is still key. The growth in Asian consumers' wages and consumption is a "juggernaut," says Martin Schulz, a foreign-stock specialist at the Armada funds, "and HSBC will be in front of it." The stock (HBC), at $88, yields 3% and trades at 15 times 2005 earnings estimates of $5.95 per share.

After selling most of its stake in cereal maker General Mills in October, Britain's Diageo is near its goal of becoming a pure seller of distilled spirits. Diageo, which sold Burger King in 2002, will probably unload the rest of General Mills in 2005. The entity that emerges will be a cash-rich owner of eight of the world's top ten premium-spirits brands, including Johnnie Walker and Smirnoff. Diageo will use the $2.1 billion in proceeds from the sale to pay down debt and accelerate share repurchases. At $56, the stock (DEO) yields 4.5%. Banc of America Securities analyst Bryan Spillane thinks the shares are attractive at 16 times expected 2005 earnings of $3.39 per share.

While Oracle and PeopleSoft engage in a hostile-takeover battle, Germany's SAP is quietly adding to its 56% market share for software that helps big firms operate more efficiently. And this is a business where size pays off. Switching brands would cost SAP's 23,000 clients dearly, so the company can count on existing customers to pay for service contracts as well as upgrades and new products. At $45, the stock (SAP) sells at 30 times forecast 2005 earnings of $1.51 per share. That may seem high, but it's reasonable in light of an improving outlook for corporate technology spending.

CNOOC is China's dominant producer of oil and natural gas. Thanks to a government-granted monopoly, it has the right to acquire -- at no cost -- a 51% interest in any offshore discovery in the South China Sea. CNOOC has "a ready stream of foreign partners" willing to meet those terms because they're anxious to crack China's energy market, says Edmund Harriss, manager of Guinness Atkinson Asia Focus. At $54, the stock (CEO) trades, says Harriss, at a "reasonably cheap" 12 times estimated 2005 profits of $4.57 per share.

--David Landis

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