The news is not encouraging. This is true no matter where in the world we look. In Asia, North Korea appears to be taking steps to develop long range missiles capable of delivering nuclear weapons. All countries in the region are at risk. Yet, stocks are rising. In Taiwan, a country most likely within reach of North Korea’s missile program, the Dow Jones Taiwan Stock Index is trading near new all-time highs.
In South Africa, riots are becoming more common as frustration with government grows. Recently, thousands of demonstrators gathered in one of the country’s three capital cities, Pretoria. One of the flash points is the president’s decision to fire his finance minister who has been described as the administration’s “strongest critic of graft.” Credit rating agencies S&P Global and Fitch cut South Africa’s status to junk. And, in the face of this news, stocks rallied.
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Europe seems to be unable to break free of its economic malaise. There is a growing recognition that Greece will need additional bailouts and eventually, some degree of debt forgiveness. These steps are likely to hurt economic growth in other countries and the debt problem is unlikely to remain contained to Greece. A recent election in France showed citizens want change. They elected a President without political experience who has promised to shake things up. The CAC Index, a benchmark for French stocks, has been rallying, almost straight up, for a year. Usually, traders would be considered with a political novice in charge of a country and we would expect starts to sell off.
Latin America is looking increasingly unstable. Venezuela appears to be on the brink of collapse and that could set off a refugee crisis that would spread to nearby countries. Brazil has struggled with government corruption and low oil prices. Yet, here too, stocks have gone almost straight up for the past year.
These four charts are not special. Almost all major indexes around the world are in strong uptrends. Most indexes are above their 200-day moving average (MA), an indicator used to determine the direction of the long term trend. Only commodity-dependent Canada and Australian benchmarks are below their 50-day MA, an indicator used to measure the direction of the shorter term trend. But even these two indexes are within 10% of their 52-week highs. It’s safe to say we are experiencing a global bull market in stocks.
At first, it might be difficult to reconcile the bullish price action with the negative headlines in the news. Markets are forward looking. If stocks are moving up, the future is most likely going to be better than the headlines indicate. The price action in all major global hot spots is bullish for now.
To benefit from the strong up trend in prices, we looked for cheap stocks with headquarters and significant operations outside of the United States. To do this, we limited our search to ADRs, or American Depositary Receipts.
ADRs are a stock that trades in the United States but they represent a specific number of shares in a foreign corporation. The foreign corporation trades on an exchange outside of the US. ADRs trade exactly like regular stocks because the ADR is sponsored in the US by a bank or brokerage.
ADRs address the problem of buying stocks on foreign exchanges. This can be a complex process and few individual investors would be able to set up a brokerage account to trade on all global exchanges. To solve the problem, large US banks, and brokerage firms buy shares overseas, bundle the shares into an ADR and issue the bundled shares on US exchanges. The price of the ADR generally is close to the price of the stock in the foreign market. If the value of the ADR differs too much from the stock’s value, the bank would be able to trade in the ADRs to make a risk free profit. This feature of trading ensures ADRs are priced fairly for US investors.
The difference between an ADR and a stock isn’t important to individual investors. The ADRs are bought and sold in the same way as any other stock. ADRs are valued in dollars in your brokerage account and commissions are the same as for any other stock. Because of this, it is possible to own an ADR without even realizing the position is an ADR rather than a stock. Some large companies, including GlaxoSmithKline (NYSE: GSK) and Unilever plc (NYSE: UL) trade as ADRs.
From all of the ADRs that are available, we narrowed our list by including only stocks that are trading for less than $10 and have paid a dividend within the past twelve months. We also required the stocks to be profitable with earnings over the past twelve months. Finally, we included only stocks which analysts believe will be profitable in the company’s current fiscal year.
We found five stocks.
Himax Technologies, Inc. (Nasdaq: HIMX) is a fabless semiconductor solution provider providing display imaging processing technologies. Himax offers display driver ICs and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital cameras, car navigation, virtual reality (VR) devices and many other consumer electronics devices. Additionally, Himax designs and provides controllers for touch sensor displays, in-cell Touch and Display Driver Integration (TDDI) single-chip solutions, LED driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, silicon IPs and LCOS micro-displays for augmented reality (AR) devices and head-up displays (HUD) for automotive. HIMX offers a yield of 1.9% and generally pays an annual dividend in July.
United Microelectronics Corporation (NYSE: UMC) provides semiconductor wafer foundry solutions. It provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. The company also engages in the research, development, and manufacture of products in the solar energy and LED industries. It primarily serves fabless design companies and integrated device manufacturers. UMC also generally pays an annual dividend in July and currently offers a yield of about 4.4%.
Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) provides retail and wholesale banking, asset management, and private banking services. The company accepts various deposits, such as current and savings accounts, fixed-term deposits, subordinated deposits, and other accounts. Its loan products include mortgage secured loans, other loans secured with security interest, unsecured loans, credit lines, and commercial credits, as well as loans to real-estate developers and foreclosed real estate assets. The company also offers credit cards; and corporate and business banking products. BBVA offers a yield of more than 6.9%.
Gold Fields Ltd. ADR (NYSE: GFI) is a gold mining company, which engages in the production of gold and operation of mines. The firm also explores for copper in Peru as well as engages in underground and surface gold and copper mining and related activities, including exploration, development, extraction, processing, and smelting. GFI offers a dividend yield of 2.6%.
Vale S.A. (NYSE: VALE) engages in the production and sale of iron ore and iron ore pallets for steelmaking in Brazil and internationally. The Ferrous Minerals segment produces and extracts iron ore and pellets, manganese, ferroalloys, and others ferrous products and services, as well as engages in the provision of railroad, port, and terminal logistics services. The company’s coal segment is involved in the extraction of metallurgical and thermal coal; and provision of logistic services. Its Base Metals segment produces and extracts non-ferrous minerals, including nickel and its by-products, such as ferro-nickel, cobalt, gold, silver, copper, precious metals, and others. VALE offers a dividend of about 3.5%.
These stocks offer exposure to overseas markets and benefit from growth in their home markets. This is a simple and inexpensive way for investors to obtain income and diversification in their portfolio.