Investing in these stocks and ETFs could be a good idea for investors to tap the international trends given the large amount of cheap money flowing into the economy.
The US stock market is 1% shy of the multiple highs hit in April, yet the enthusiasm is missing. A sense of despondency is widespread thanks to the Fed’s downgraded outlook on the labor market and economy in its latest policy meeting. And the dovish comments clearly point to still more months of waiting before the first interest-rate rise since 2006. But why?
Concerns over an economic slowdown can be felt across the US. A spate of weak domestic data, soft corporate earnings, and the reemergence of default worries in Greece dampened the appeal of US equities. The direct impact of this was the cut in the US growth forecast by the International Monetary Fund (IMF) for this year and the next to 3.1% each from the previous expectation of 3.6% and 3.3%, respectively.
To top it all, a brutal winter, slumping exports and sharp cutbacks in oil and gas drilling, made the US economy come almost to a halt with meager 0.2% growth in the first quarter.
The worries deepened early last week after the nation’s trade deficit widened the most in more than six years in March and the Fed warned that “equity market valuations are quite high at present." Though the US stocks regained most of the losses on Friday’s trading session on solid job numbers for April, the average wage growth of American workers is still lagging.
International: The Bright Corner
Given the bout of volatility and uncertainty, investors are pulling out their money from US stocks and putting it in the international markets. International investing has been in vogue for most of this year due to ultra-cheap money flowing worldwide in stark contrast to the stronger US. Nonetheless, most of the developed and developing markets have broken free from last year’s malaise of slow growth and have started to show strength on monetary easing policies.
The lure of the international bourses is likely to remain as the Fed has set the stage for a slower-than-expected interest rate rise, which might weaken the US dollar and attract more foreign inflows, raising the demand for the equities in these nations. Fortunately, there are some top-ranked picks in this market, 2 stocks and ETFs, which we have detailed below. Any of these could enjoy smooth trading and widely outperform the US market in the coming months.
Stocks to Buy
We have used our Zacks stock screener to find out the best stocks in the international space. The parameters include Zacks Rank #1 (Strong Buy) or #2 (Buy), market cap of $100 million or above, a solid Zacks Industry Rank, positive current-year earnings estimate revisions over the past 30 days, and triple-digit current-year EPS growth. Further, we have narrowed down the list to ultra-cheap plays by screening for Price-to-Earnings (P/E) and Price-to-Book (P/B) ratios of under 15 and 2, respectively.
Based in Beijing, China, Changyou.com is a leading online game developer and operator in China. It is engaged in the development, operation and licensing of multi-player online role-playing games for PCs and mobile devices. It has a market cap of $1.7 billion. The company has seen excellent earnings estimate revisions of 26.4% for 2015 over the past 30 days. This represents massive year-over-year growth from a loss of 6 cents reported last year (read: Can The Uptrend Continue for Changyou.Com?).
The stock has a P/E of 10.29 and P/B ratio of 1.74, a massive discount to the industry average P/E ratio of 20.7 and P/B ratio of 3.8. This reflects that CYOU is undervalued at current levels and bodes well for the future given its Zacks Rank #1 and a solid Industry Rank in the top 20%.
Based in in Paris, France, BNP Paribas is a European leader in global banking and financial services and is one of the 4 strongest banks in the world according to Standard & Poor's. It offers banking and financial services to individuals, young people, and professional customers, as well as to companies and institutional investors globally. The Zacks Consensus Estimate for 2015 has been revised up from $2.96 to $3.03 over the past 30 days and represents substantial year-over-year growth from a loss of 5 cents reported last year.
The stock, with a market capitalization of $79.1 billion, has a P/E ratio of 10.49 and P/B ratio of 0.64 versus the industry average of 13.4 and 2, respectively. It has a Zacks Rank #2 and an excellent Zacks Industry Rank in the top 28%, suggesting substantial growth this year.
ETFs to Buy
While there are a number of top ranked ETFs in the broad international space, the following 2 funds could make for a compelling play. The duo has enjoyed strong momentum and has easily crushed the broad US market fund (SPY) from a year-to-date look, and has potentially superior weighting methodologies which could allow it to continue leading the international space.
Both funds are from a single issuer—Vanguard—charging a low fee of just 14 basis points (bps) annually and expected to outperform in the months to come.
Vanguard FTSE All-World ex-US ETF (VEU)
This ETF tracks the FTSE All-World ex US Index, holding a large basket of 2,497 securities in a portfolio. None of the securities account for more than 1.3% of total assets. In terms of country exposure, European firms take the top spot at 45.7%, followed by Pacific (29.2%) and Emerging markets (18.6%). VEU is the largest and most popular ETF in the international space with AUM of $14 billion and average daily volume of about 1.8 million shares. It has returned over 8.3% so far this year (read: 5 International ETFs Beating the S&P 500 in Q1).
Vanguard Total International Stock ETF (VXUS)
This product follows the FTSE Global All Cap ex US Index and holds 5,905 securities in its basket. It is widely spread out across various components with none holding more than 1.1% share in the basket. Here again, Europe takes the top spot at 45.2% from a regional look, while the Pacific and Emerging markets firms round off the top three. The fund has $4.5 billion in AUM and sees good volume of more than 510,000 shares a day on average. The ETF is up 10.7% so far this year.
Investing in above-mentioned stocks and ETFs could be a good idea for investors to tap the international trends given the large amount of cheap money flowing into the economy. Further, the risk-off sentiments on US stocks should propel these products higher.
This article originally appeared at http://www.zacks.com. Republished with permission.
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