Investing Abroad: British Stocks

By Matthew Luke - July 2, 2012 | Tickers: ARMH, AZN, DEO, HBC, NGG | 0 Comments

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Diversification is the best defense against global uncertainty. Living abroad, that is one truth that I have come to appreciate more and more. With so much uncertainty in Europe and the rest of the world, we sometimes forget that truth. In these times of uncertainty, many investors seek the safety of good US companies, avoiding the rest of the world completely. Diversification means more than just different sectors of the US economy. Diversification also means foreign companies that will protect your portfolio from domestic risk.

The simplest way for individual investors to achieve adequate international diversification is through an ETF. The PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio or the PowerShares FTSE RAFI Emerging Markets Portfolio will give investors sufficient global diversification, with a decent dividend to boot. For investors looking for a more hands on approach, below are five British companies that might be suitable for a more globally diversified portfolio.

1. Diageo (NYSE: DEO) is the world’s largest producer of liquor and a leading producer of beer and wine. Diageo’s brands include Guinness, Johnnie Walker, Smirnoff, Captain Morgan, Crown Royal and Jose Cuervo. Diageo’s largest region is North America at 35% of net sales. Europe and Asia-Pacific represent 26% and 12% respectively. Diageo is a play on the emerging market, as it continually looks to expand away from developed markets. Diageo is also a play on changing consumer tastes. Over the past few years, liquor has been taking market share away from beer. While Diageo also produces beer, it is much more of a liquor company and should benefit greatly from this trend.

2. National Grid (NYSE: NGG) is a natural gas and electric utility operating across Great Britain and the United States. National Grid is a consistent dividend-paying company that has increased their dividend every year since 1996. In uncertain times, you don’t get much more certain than a high-yielding utility. For risk-adverse income-seeking long-term investors, National Grid is a great stock to own. Utilities stocks aren’t exciting investments, but excitement can be overrated sometimes. National Grid is also cheap by a measure of its price to earnings. While the industry as a whole trades at an average PE of 16.34, National Grid's PE is at 11.70. National Grid also pays a higher dividend than most utilities at a 6% yield. Both of these factors are mostly likely due to it being associated with Europe. Whatever happens in Europe, there will always be a need for electricity and natural gas.

3. HSBC Holdings (NYSE: HBC) is the second largest banking and financial services company in the world. HSBC Holdings has nearly 90 million customers across 85 territories. The US credit crisis and continued problems in Europe has held its share price down, despite being one of the better banks in Europe. HSBC is one of the better banks in Europe primarily because the majority of its operation and assets exist outside of Europe. The largest percentage of the company’s risk-assets is in Asia-Pacific, making up 31.5% as of last year. Most recently, the Barclays-Libor probe has been yet another problem that will hold back British financial stocks.

4. AstraZeneca (NYSE: AZN) is a global pharmaceuticals company. AstraZeneca is the fifth largest measured by drug sales; the second largest in Great Britain. Like National Grid and HSBC, AstraZeneca is another example of a company stock price hurt by its association with Europe. It trades at a significant discount to its American peers and pays a significantly higher dividend yield. If/when Europe ever gets its act together; AstraZeneca might be a good place for healthcare investors or income investors to park their money with the company’s 6.45% dividend yield.

5. ARM Holdings (NASDAQ: ARMH) is a semiconductor and software company. ARM Holdings is best known for its ARM processors found in the vast majority of mobile phones today, including the Apple iPhone. Instead of manufacturing its processors directly, ARM Holdings licenses its technology to other companies like Nvidia, Qualcomm and Samsung who do the actual manufacturing and selling of the chips. This allows ARM to avoid the production costs associated with the actual manafacturing of the chips. ARM can instead focus completely on the development of new chips. The continued growth of smartphones and tablets and the transition away from traditional PCs bode well for this company.

Are these five British companies suitable for your own diversified portfolio? That I cannot say. Use this list a good stepping-off point for your own research into good companies in Great Britain and elsewhere in the world. Please contact a tax professional about the suitability of international companies in your portfolio.

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