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5 ADRs That More Than Doubled the S&P 500 in 2018

Swarup Gupta

According to the European Central Bank (ECB), the global economy is likely to cool down next year. The comments were made in an economic bulletin released on Thursday and are in keeping with investor expectations. Given this backdrop, the U.S. economy looks like a safe bet for 2019 since GDP is likely to decline but remain firm.

However, the recent turbulence in U.S. markets left investors scurrying for cover. The situation has worsened particularly over the last few months and currently, all major benchmarks are in the red year to date. The S&P 500 is down 7.5% over this period. But can domestic investors afford to indulge in foreign diversification?

On closer examination, some economies do offer a glimmer of hope, since they are expected to perform well or show resilience in 2019. These include Japan, Ireland and India. Investing in stocks from these countries, which have beaten the S&P 500 this year by a wide margin, looks like a smart choice.

Global Economic Slowdown Likely in 2019

Per the ECB, “global economic activity is expected to decelerate in 2019 and remain steady thereafter.” However, “inflationary pressures” in the Eurozone and the world at large will persist next year. Recently, the ECB decided to end its bond purchases but said it will continue to reinvest maturity proceeds for an extended period after its first rate hike. The comments about the global economy were made in this connection.

The views of the International Monetary Fund (IMF) about next year’s growth prospects are in consonance with the ECB’s. According to the IMF, the global economy will expand at 3.7% next year. This represents marginal softening since the IMF had initially pegged global growth for 2019 at 3.9%. 

Investors and analysts think that the projected slowdown is attributable to a spike in borrowing costs for dollar debtors and U.S.-China trade tensions. Skepticism about trade relations between the two global powers persists despite recent assuagements from key figures in the Trump administration. Meanwhile, the dollar has surged this year on the back of a strong U.S. economy and shows no signs of backing down.

Japan, India, Ireland Offer Hope

However, doom and gloom aren’t in the cards for economies across the board in 2019. Japan, for instance is likely to grow at a solid space, even though some critics predict a marginal slowdown. According to Japan’s government, the country’s economy will expand at 0.8% till next March and by 1.3% in fiscal 2019.

The optimistic view on Japan assumes that the U.S. economy, the engine of global growth, will remain robust. President Trump is likely to utilize every single policy measure to boost the economy ahead of his re-election bid. Further, Japan’s government will take several steps to mitigate the impact of a proposed sales tax hike next year. Overall, analysts think Japan faces fewer headwinds than other economies.

Meanwhile, India’s pace of expansion will decline but remain impressive in 2019, per the Organization for Economic Cooperation and Development (OECD). While India’s GDP came in at 6.7% in 2017-2018, its economy is projected to expand 7.3% next year. Key structural reforms and credible inflation targeting are some of the factors likely to boost growth. The U.S.-China trade war is likely to benefit India’s exports. 

Coming to Ireland, EY-DKM Economic Advisory predicts Ireland’s economy will expand by 4.2% in 2019. According to EY Ireland’s chief economist Neil Gibson, the country’s economy is in a “positon of strength”. Further, “domestic strength provides Ireland with short-term insulation against a slowdown globally.” Notably, employment is expected to expand at 2.7% while wage growth will increase by 3.6% next year. 

Our Choices

Global economic growth is likely to taper off next year even as the U.S. economy cools but remains firm. However, the recent market turbulence will have investors looking for international diversification. The economies of India, Japan and Ireland are likely to remain robust in 2019 and remain lucrative investment destinations.

Adding stocks from these countries which have more than doubled the S&P 500 this year would make for a prudent choice. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics. Each of our stock picks has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of ADR Picks YTD Vs. S&P 500

Internet Initiative Japan Inc. IIJI offers a comprehensive range of Internet access services and Internet-related services to customers, including corporations and other Internet service providers, in Japan.

Internet Initiative Japan has expected earnings growth of 10.2% for the current year. The stock has gained 19.1% year to date.

Sony Corporation SNE designs, manufactures and sales several consumer and industrial electronic equipment.

Sony’s expected earnings growth for the current year is 37.8%. The stock has gained 8% year to date.

Ingersoll-Rand Plc IR designs, manufactures, sells and services a diverse portfolio of industrial and commercial products across the globe. The company is headquartered in Dublin, Ireland.

Ingersoll-Rand has expected earnings growth of 23.8% for the current year. The stock has gained 2.3% year to date.

HDFC Bank Limited HDB is a provider of banking and financial services to individual and business customers in India, Hong Kong, Dubai and Bahrain. The company is headquartered in Mumbai, India.

HDFC Bank has expected earnings growth of 8.5% for the current year. The stock has gained 0.6% year to date.

Dr. Reddy's Laboratories Ltd. RDY is an integrated global pharmaceutical company engaged in providing affordable and innovative medicines since 1984. The company is headquartered in Hyderabad, India.

Dr. Reddy's Laboratories has expected earnings growth of 40.6% for the current year. The stock has gained 0.1% year to date.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>


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Internet Initiative Japan, Inc. (IIJI) : Free Stock Analysis Report
 
Sony Corporation (SNE) : Free Stock Analysis Report
 
HDFC Bank Limited (HDB) : Free Stock Analysis Report
 
Ingersoll-Rand PLC (Ireland) (IR) : Free Stock Analysis Report
 
Dr. Reddy's Laboratories Ltd (RDY) : Free Stock Analysis Report
 
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