Why Should I Buy Foreign Stocks?

Why Should I Buy Foreign
Stocks?
By www.ProfitableTradingTips.com

http://profitabletradingtips.com/profitable-trading-tips/why-should-i-buy-foreign-stocks
A year ago the S&P 500 hit an all-
time high.

US stocks had a good run,
although there has been some
cooling off of late.

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Is the US market where you
should be right now?

How about offshore? Why should
I buy foreign stocks, you ask?

According to Kiplinger foreign
stocks are too cheap to ignore.

foreign stocks are simply too
cheap to ignore.

what’s more, when the outlook is
dim, as it is for foreign
economies, just a little good news
can ignite a new bull market. how
cheap are foreign stocks?

the leuthold group, a
minneapolis-based investment-
research firm, computes price-
earnings ratios based on
“normalized” earnings-which it
defines as average earnings over
five years-to strip out some of the
short-term hills and valleys from
corporate results.

the s&p 500 trades at a rich 21
times normalized earnings.

but foreign developed stocks
change hands at just 15 times
earnings, and emerging markets
fetch only 10 times earnings.

price-earnings ratios computed
using other methods provide
similar results.

foreign developed and emerging-
markets stocks are also cheap
according to other measures,
such as dividend yield and price
to book value (assets minus
liabilities).

So the US bull market is done for
now.

And there is a lot of pain in
foreign economies around the
globe.

But, if you like the blood in the
streets approach to investing now
is the time to look at cheap
foreign stocks.

Picking Foreign Stocks

Why you might like to buy foreign
stocks is for the dividends.

dividend.com notes the high yield
on selected foreign stocks.

They note 5 foreign stocks
yielding over 4.5%.

the dividend.com foreign
dividends stock page tracks
companies that are based
outside the united states but have
shares that trade on us
exchanges.

these shares are called adrs
(dividend yields are much higher
abroad.

theoretically, developed countries
should have higher yields than
emerging markets, as they have
more companies that have
matured in their respective
industries and are thus declaring
higher payouts.

this holds true in most cases:
australia tops the list with the
highest yield, while canada, the
united kingdom, and italy also
have higher yields. american
depository receipts).

Read the article for the examples
but these are good reasons why
you should buy foreign stocks.

Exchange Rate Risk

When you buy foreign stocks via
American Depositary Receipts
you pay for your stock in dollars
and that is how you receive
dividend payments.

However, the original stock and
dividends are denominated in the
home currency of the country.

The second company on
the dividend.com list is Canadian.

Five years ago the Canadian
dollar was on a par with the US
dollar.

Today you need about $1.30
Canadian for each greenback.

That also comes out to a 30%
drop in the value of your
dividends.

Stocks denominated in major
currencies such as the yen, euro,
British pound, Swiss franc,
Canadian dollar and Australian
dollar are subject to mild to
moderate exchange rate risk.

But currencies such as the
Brazilian real and Russian ruble
are risky.

If you choose to invest in stocks
in these countries you need to
keep track of their economies
and exchange rates or you could
be burned.

Why Should I Buy Foreign Stocks?

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