There are a few things in life you can depend on. Unsolicited advice from your parents, for instance. Or being one sock short after washing a load of laundry. You can also rely on my colleague Christine Benz to share the long-term stock and bond return forecasts of several highly respected investment firms—including BlackRock, J.P. Morgan, Morningstar Investment Management, Research Affiliates, Schwab, and Vanguard—each January.
Why does she engage in this annual ritual?
“Long-term return projections can be useful and are arguably even mission-critical in a financial planning context,” she argues. “Without some expectation of what market returns might be, it’s difficult to know how much to save, whether a retirement nest egg is adequate, or whether an in-retirement spending rate is too high. Long-term historical returns might fill that role, but at various points in time, such as early 2000 or early 2022, they might be unrealistically high.”
What are the pros expecting from the markets in the next several years? Most expect U.S. stocks to outperform U.S. bonds—but not by much. It’s not too surprising that the expected return difference between the two asset classes is only modest, given where bond yields stand today. More striking, though, is that every firm surveyed expects international stocks to outperform U.S. stocks over the next decade by a sizable margin.
For those investors who’d like to increase their exposure to non-U.S. stocks, here are Morningstar’s best international stocks and ETFs to buy.
10 of the Best Undervalued International Stocks to Buy
These 10 international companies are among the most undervalued stocks in the Morningstar Global Markets ex-US Moat Focus Index as of Jan. 10, 2024.
1) Tencent Holdings TCEHY
2) Bayer BAYRY
3) Yum China YUMC
4) Alibaba Group BABA
5) Lloyd’s Banking Group LYG
6) NetEase NTES
7) The Swatch Group SWGAY
8) Millicom International Cellular TIGO
9) Bayerische Motoren Werke BMWYY
10) Roche RHHBY
For those comfortable investing in individual stocks, Morningstar’s strategy for stock investing applies around the globe. First, favour companies with durable competitive advantages, or economic moats. These companies should be able to fend off competition and outearn their costs of capital for years to come. Then, buy these companies when their stocks are trading below what they’re worth—in our parlance, below our fair value estimates. We think undervalued stocks with economic moats make excellent long-term investments.
The Morningstar Global Markets ex-US Moat Focus Index is a quality-focused subset of the Morningstar Global Markets ex-US Index, a broad index representing 97% of the developed-markets (excluding the United States) and emerging-markets market capitalization. Morningstar ranks the wide- and narrow-moat stocks in the broad index by lowest price/fair value to find the 50 cheapest wide- and narrow-moat stocks. These stocks represent the most compelling values in the global moat universe.
