Introduction to International Stocks
International stocks refer to shares of publicly traded companies that are based outside an investor’s home country. These investments offer a pathway for investors to tap into economies outside their domestic borders, providing opportunities for diversification and growth.
Characteristics of International Stocks
Diversification: One of the key advantages of international stocks is the ability to diversify your portfolio geographically. By investing in companies from different countries, investors can reduce reliance on the performance of their home market, spreading risk across global economies. This can help offset losses in one region with gains in another, making the portfolio less vulnerable to localized downturns.
Access to High-Growth Markets: International stocks provide access to emerging markets with high growth potential. Countries like India, Brazil, and China are home to rapidly expanding economies and industries, often offering higher returns than more mature markets. However, these markets may also come with increased risks such as political instability and weaker regulatory frameworks.
Currency Diversification: Holding international stocks introduces currency diversification, which can protect against currency devaluation in the investor’s home country. Currency fluctuations can either boost or erode returns, so managing currency risk is crucial.
Broader Industry Exposure: Certain industries are more developed or prominent in specific regions. For example, the U.S. leads in technology, while Europe excels in luxury goods, and Asia dominates semiconductor manufacturing. Investing in international stocks allows investors to access these diverse industries.
Types of International Stocks
Foreign Ordinary Shares: These are shares issued by non-U.S. companies directly on foreign exchanges. They expose investors to different economic environments and growth opportunities but may not be subject to the same regulations as U.S. securities.
Global Depository Receipts (GDRs): GDRs are similar to American Depository Receipts (ADRs) but are designed for a more international audience. They can be issued in multiple currencies and traded globally, allowing investors outside the U.S. to access foreign companies listed elsewhere.
Benefits of Investing in International Stocks
Diversification of Investment Portfolio: By incorporating foreign assets, investors can spread their risk across various economies and market cycles, reducing overall investment risk and potentially yielding more stable returns over time.
Opportunity for Higher Returns: Different countries grow at different rates, and emerging markets often show robust economic growth, offering the potential for higher returns compared to domestic markets.
Risks of Investing in International Stocks
Currency Fluctuations: Changes in exchange rates can directly affect the returns on investment in international stocks, as profits from foreign equities must often be converted back into the investor’s home currency.
Political and Economic Risks: International stocks may be subject to political risks, including government instability, fiscal policies, and trade relations. Geopolitical tensions can also impact the performance of these stocks.
Regulatory Differences: Companies in different countries may follow varied regulatory and reporting standards, which can impact the transparency and operations of foreign entities.
Market Outlook
Despite short-term obstacles such as rising geopolitical risks and election-year trade tensions, many professional managers and researchers expect international stocks to potentially outperform U.S. stocks over the next 20 years. The biggest opportunities may be in emerging market stocks, particularly Chinese companies.
The following picks are among the best international stocks to buy right now
ASML Holding NV (ASML)
A provider of advanced equipment for chipmakers, ASML is a Netherlands-based company that is essential to global supply chains thanks to its critical role in measuring and inspecting semiconductors. It should go without saying that any significant waste or delays for chipmakers costs real time and money, making ASML a valued partner for major semiconductor firms. That gives it a strong and reliable revenue stream.
Semiconductor markets can sometimes be volatile based on global pricing and demand trends. As an added bonus, the nature of this company as a service provider to the industry gives it a degree of insulation from broader chipmaking economics.
HSBC Holdings PLC (HSBC)
London-based megabank HSBC may be recognizable to some U.S. consumers, but elsewhere, it is a well-known name that provides banking and financial services worldwide. Like other major enterprises in the sector, it operates a diversified business, including personal and commercial banking, wealth management and capital markets segments.
Over the last year, HSBC has outperformed the S&P 500, with a generous 4% yield on top of share appreciation. That rate is significantly higher than many U.S. peers in the financial sector and considerably above the 1.4% paid by S&P 500 components, on average. If you want to look beyond the U.S. for a leading financial stock, HSBC is worth a look.
Novo Nordisk A/S (NVO)
Denmark-based Novo Nordisk is a pharmaceutical stock with the perfect specialty for 2025: diabetes and obesity care. It also provides treatments for rare blood and endocrine system disorders, but this focus is clearly the bread-and-butter of NVO, with blockbusters like its recent Wegovy treatment that just topped $2.5 billion in sales for Q3, up 48% from the previous quarter.
Shares have softened up a bit lately as many investors were front-running the success of this treatment and now most of the growth is priced into Novo Nordisk stock. But the durable revenue from diabetes products provides a firm foundation, and the proven drug pipeline of this century-old pharma leader makes it one of the best international stocks to buy for 2025.
Nestle SA (OTC: NSRGY)
Founded in 1866 and one of the biggest consumer staples stocks on the planet, Switzerland-based Nestle is a reliable and profitable company, and thus worth attention from all global investors. Shares have been soft the last few years in part due to a focus on healthier eating in the West that has weighed on the sales of processed foods.
But the reality is that Nestle’s Kit-Kat chocolates, H?agen-Dazs ice cream, Hot Pockets frozen foods and other products are consistently in shopping carts and have strong baseline demand even if they have a modest growth outlook. If you’re looking for stability, you can’t go wrong with this massive consumer leader.
SAP SE (SAP)
German enterprise software giant SAP has digital solutions for businesses across a host of categories, from customer relationship management tools to supply chain and logistics to human resources. The company has been aggressively investing in cloud services over the past few years, and like many modern tech stocks, it now has tremendously reliable revenue thanks to a software-as-a-service model.
At roughly $300 billion in market value and a slower growth rate than flashy small-cap AI and crypto plays, SAP isn’t as dynamic as some other technology firms out there. But with free cash flow that is on pace to top $4 billion this fiscal year, this software leader has a firm foundation that will serve investors well.
Tencent Holdings Ltd. (OTC: TCEHY)
Sometimes referred to as the Google of China, Tencent is a digital titan that dominates the Asian tech landscape. It’s valued at about $450 billion, and it has varied business lines including online advertising, mobile payments, video streaming, web browser software, cloud computing, big data analytics and artificial intelligence.
At the end of 2024, China’s central government signaled plans for aggressive stimulus efforts to spur consumer demand, and the nation’s central bank said it will loosen monetary policy. With entrenched operations related closely to broader spending trends, Tencent is a natural recipient of these measures. In the long term, you can’t find a more dominant tech stock in the region.
Toyota Motor Corp. (TM)
Japanese auto giant Toyota ranks as the No. 1 automaker in the world with about 11 million vehicles sold in 2023. With operations in every market and a wide product portfolio, this industry leader has both the know-how and the capital to remain relevant in an evolving environment.
A few years back, not all investors were pleased with the fact that Toyota leaned more heavily on its hybrid vehicles instead of electric-only cars. With the bloom off the rose for a lot of electric vehicle stocks and many traditional automakers cutting back on EV investments, Toyota has been looking quite shrewd. As the industry leader with roughly $300 billion in annual revenue, this auto icon is one of the best international stocks to buy for 2025.