Many experts recommend that U.S. investors increase their exposure to non-U.S. equities in order to capitalize on economic recovery in Europe and growth in Asia. S&P's Investment Policy Committee currently recommends a portfolio weighting of 20% foreign equities.
But how can a U.S. investor get in the game? One approach is to purchase American Depositary Receipts (sometimes known as American Depositary Shares), which are receipts held by a U.S. bank that represent stock in a foreign company. ADRs trade in U.S. dollars, making it simpler for U.S. investors to participate in overseas markets. For this week's screen, we set out to identify some of the most attractive ADRs by using two proprietary S&P measures -- and then surveying the rest of Wall Street.
WEAVING THE NET. First, we searched our database for ADRs with S&P investment rankings of 3 STARS (hold) or above. Next, we turned to S&P's Fair Value model, a proprietary quantitative stock ranking system. The model calculates a stock's weekly Fair Value -- the price at which a stock should trade at current market levels -- based on fundamental data such as corporate earnings and growth potential, price-to-book value, return on equity, and current yield relative to the S&P 500. We filtered for those issues ranked "4" or "5", indicating these issues are significantly undervalued.
The names on our list had to jump through one final hoop. We looked for those issues that carried the equivalent of an average ranking of at least 4 STARS (buy) from other Wall Street analysts, based on data from I/B/E/S.
When we completed our search, these eight names turned up: