Finland has Nokia (NYSE: NOK). The press has doted on Apple's (NASDAQ: AAPL) iPhone, but Nokia still has the largest share of smart phones and its distribution of low-end phones in emerging markets-where most of the new subscriber growth is generated-is unparalleled. ABB (NYSE: ABB) is a Swedish-Swiss mix that is a leader in boosting efficiencies in factories, increasingly important when margins are being squeezed.

Q. Emerging markets have had big sell offs this year. Would you still encourage investors to actively participate in them?

A. Earlier in the year, emerging markets held up remarkably but recently, money has fled, crushing many of them. But their economies will continue to grow faster than developed markets and an investor should have exposure to them.

Q. Morningstar's price/fair-value ratios have substantially dropped for many stocks around the world. What does this mean for investors?

A. Our fair value estimates-the analyst's estimate of the worth of a stock-are generated by a proprietary discounted cash flow model, which includes analyst expectations. The biggest drivers are revenue growth, margins, and capital expenditures. A price/fair value ratio of one says the stock is trading at its fair value; above one means overvalued, and below one is undervalued.

As of September 15th, the median ratio for all international stocks we cover was 0.75, meaning the median stock was trading at a 25% discount. This is the lowest reading since I began calculating the ratio two and a half years ago, which shows the market is relatively cheap.

Q. Which are your favorite companies right now?

A. I'm interested in more defensive plays in industries that generate significant cash flow and that are fairly resistant to the state of the economy. Novartis (NYSE: NVS) has a strong pipeline for branded drugs, the second largest generic business in the world, and a strong vaccine and consumer businesses. This diversification reduces volatility in its earnings from any particular business.

And France Telecom (NYSE: FTE) generates strong cash flow from its incumbent fixed-line businesses in France and Poland, which it is reinvesting in wireless and broadband. These businesses are providing some growth, particularly its continued expansion into Africa and other emerging markets.

Nancy Zambell edits the Global Investing page for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.

 

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