3 Global Stocks to Diversify Your Portfolio

 

When it comes to building a robust investment portfolio, diversification is a fundamental principle that cannot be overlooked. Many investors believe that spreading their capital across a handful of domestic companies suffices for diversification. However, true diversification involves a more sophisticated approach, especially in today's interconnected global economy. Recent economic fluctuations and geopolitical tensions worldwide have prompted investors to reconsider the extent of international exposure in their portfolios.

Investing in international stocks offers exposure to varied economic cycles and growth opportunities that may not be present in domestic markets. While U.S. equities are primarily driven by internal factors, international stocks can tap into different regional trends, potentially enhancing returns and mitigating risks. In this article, we delve into three global stocks—SAP SE (SAP), AstraZeneca PLC (AZN), and Alibaba Group Holding Limited (BABA)—that provide avenues for portfolio diversification through their strong presence in expanding economies and emerging markets.

The Importance of Global Diversification

Navigating Economic Shifts

As nations strive to bolster their own industries and reduce dependence on foreign markets, new investment opportunities are emerging. This shift towards self-reliance can lead to increased competition and economic autonomy. Consequently, while the U.S. economy might face headwinds, certain international markets could be experiencing growth spurts, and vice versa. Incorporating international equities into your portfolio can help balance these regional economic disparities.

Capitalizing on Monetary Policies

Currently, inflation rates in many countries are aligning closely with central bank targets, which may lead to more accommodative monetary policies in the near future. Additionally, the global economy has demonstrated resilience, with growth projections maintaining a steady pace of 3.2% for 2024 and 2025. Emerging markets, in particular, are expected to grow at approximately 4.2% in the coming years, driven by strong performances in regions like emerging Asia.

Emerging Markets Outperforming

Notably, emerging market equities have recently outpaced their developed market counterparts, recording gains of 8.7% compared to 6.4%. This trend is significant as it marks the first instance since 2020 where emerging markets have outperformed for two consecutive quarters. This momentum suggests a favorable environment for investors looking to diversify internationally.

Considering these favorable trends, let's explore the fundamentals of the highlighted stocks in detail.

SAP SE (SAP)

Overview of SAP SE

SAP SE is a Germany-based multinational corporation that specializes in enterprise application software. The company operates through three primary segments:

• Applications, Technology & Services
• SAP Business Network
• Customer Experience

SAP's software solutions enable businesses to manage operations and customer relations effectively, making it a global leader in enterprise software.

Strategic Acquisition: Enhancing Capabilities

On September 12, 2024, SAP completed the acquisition of WalkMe Ltd. (WKME) for $1.5 billion in an all-cash transaction. WalkMe's digital adoption platform is set to enhance SAP's Business Transformation Management portfolio, which includes SAP Signavio and SAP LeanIX. This acquisition aims to improve workflow execution and user experience across SAP's offerings. Furthermore, WalkMe's artificial intelligence technology will power SAP's Joule copilot, providing context-aware assistance to boost productivity.

Financial Performance

Q3 2024 Results

For the third quarter ended September 30, 2024, SAP reported impressive financial results:

• Total Revenue: Increased by 9.4% year-over-year to €8.47 billion ($9.16 billion).
• Gross Profit: Grew by 10.2% from the previous year to €6.21 billion ($6.72 billion).
• Operating Cash Flow: The cash inflow from operating activities amounted to €1.47 billion ($1.59 billion), marking a 31.2% improvement from the same period last year.
• Free Cash Flow: Stood at €1.25 billion ($1.35 billion), up 44.3% year-over-year.

These figures reflect SAP's strong operational efficiency and its ability to generate substantial cash flows.

Analyst Expectations

Analysts have positive projections for SAP's future performance:

• Q4 2024 Revenue: Expected to grow by 7.3% year-over-year to $9.86 billion.
• Q4 2024 EPS: Estimated to be $1.51.
• Revenue Estimates: SAP has exceeded revenue estimates in three of the trailing four quarters, showcasing consistent performance.

Stock Performance and Ratings

• Stock Growth: The stock has appreciated by 77.8% over the past year, closing the last trading session at $237.69.
• POWR Ratings: SAP's strong prospects are reflected in its B overall rating, translating to a Buy in the proprietary POWR Ratings system.
  • Grades:
    • Stability: B
    • Sentiment: B
    • Quality: B
• Industry Ranking: Out of 132 stocks in the Software – Application industry, SAP is ranked #27.

Investment Considerations

SAP's strategic acquisitions and robust financial performance make it a compelling option for investors seeking international exposure in the technology sector. The company's focus on enhancing its product portfolio through AI and digital adoption platforms positions it well for future growth.

AstraZeneca PLC (AZN)

Company Profile

AstraZeneca PLC is a globally recognized biopharmaceutical company headquartered in Cambridge, United Kingdom. The company specializes in the discovery, development, manufacturing, and commercialization of prescription medicines. Its therapeutic areas include:

• Oncology
• Cardiovascular, Renal, and Metabolism (CVRM)
• Respiratory and Immunology
• Rare Diseases
• Infectious Diseases, including COVID-19

Strategic Expansion: Acquisition of Fusion Pharmaceuticals

On June 4, 2024, AstraZeneca expanded its oncology portfolio by acquiring Fusion Pharmaceuticals Inc., a clinical-stage biopharmaceutical company focusing on next-generation radioconjugates (RCs). Key highlights of the acquisition:

• Pipeline Enhancement: Fusion's innovative RC pipeline, including FPI-2265 for metastatic castration-resistant prostate cancer (mCRPC), complements AstraZeneca's existing oncology offerings.
• Expertise and Capabilities: The acquisition enhances AstraZeneca's expertise in radioconjugates and expands its research and development, manufacturing, and supply chain capabilities.
• Market Presence: Strengthens AstraZeneca's presence in Canada and solidifies its position in the global oncology market.

Financial Highlights

Q2 2024 Performance

AstraZeneca reported strong financial results for the second quarter ended June 30, 2024:

• Total Revenue: Increased by 13.3% year-over-year to $12.94 billion.
• Gross Profit: Rose by 13.7% from the previous year to $10.76 billion.
• Profit After Tax: Amounted to $1.93 billion, representing a 5.9% increase from the prior-year quarter.
• Earnings Per Share (EPS): Reached $1.24, up 6% year-over-year.
• Operating Profit: Stood at $2.75 billion, an 11.8% increase from the same period last year.

Future Outlook

Analysts have optimistic expectations for AstraZeneca:

• Q3 2024 EPS: Projected at $1.05, representing a 20.9% improvement year-over-year.
• Q3 2024 Revenue: Expected to reach $13.11 billion, indicating a 14.1% increase from the prior-year period.
• Earnings Surprises: The company has surpassed consensus revenue estimates in three of the trailing four quarters, demonstrating strong performance.

Stock Performance and Ratings

• Stock Appreciation: Shares have gained 16.2% over the past year, closing the last trading session at $75.05.
• POWR Ratings: AstraZeneca boasts an overall rating of A, equating to a Strong Buy.
  • Grades:
    • Growth: A
    • Stability: A
    • Value: B
    • Quality: B
• Industry Ranking: Among 163 stocks in the Medical - Pharmaceuticals industry, AstraZeneca is ranked #7.

Investment Rationale

AstraZeneca's strategic acquisitions and strong financial performance underscore its potential as a solid investment in the healthcare sector. The company's focus on innovative therapies and expansion into new markets positions it favorably for future growth, making it an attractive option for investors seeking exposure to the global pharmaceutical industry.

Alibaba Group Holding Limited (BABA)

Company Snapshot

Based in Hangzhou, China, Alibaba Group Holding Limited is a multinational conglomerate specializing in e-commerce, retail, Internet, and technology. Alibaba provides the technology infrastructure and marketing reach to help merchants, brands, and retailers leverage the power of new technology to engage with their users and customers. The company's segments include:

• China Commerce
• International Commerce
• Local Consumer Services
• Cainiao (Logistics)
• Cloud Computing
• Digital Media and Entertainment
• Innovation Initiatives and Others

Strategic Partnerships: Expanding Financial Services

On September 5, 2024, Alibaba partnered with Mastercard Incorporated (MA) and Cardless to launch a co-branded credit card. Key aspects of the partnership include:

• Rewarding Purchases: The credit card offers rewards to businesses for both cross-border and domestic purchases on Alibaba.com.
• Simplifying Transactions: Aims to streamline the shopping experience for customers, enhancing convenience and efficiency.
• Strengthening Global Presence: This collaboration is set to boost customer loyalty and solidify Alibaba's global market position.

Financial Performance

Q1 Fiscal 2025 Results

For the fiscal first quarter ended June 30, 2024, Alibaba reported:

• Revenue: Increased by 3.9% year-over-year to $33.47 billion.
• Income from Operations: Amounted to $4.95 billion.
• Adjusted EBITDA: Reported at $6.20 billion for the quarter.
• Non-GAAP Net Income: Came in at $5.60 billion.
• Non-GAAP EPS: Stood at $0.28 for the quarter.

These results indicate Alibaba's steady performance and ability to maintain profitability amidst challenging market conditions.

Analyst Projections

Future estimates for Alibaba are positive:

• Q3 2024 Revenue: Expected to increase by 9% year-over-year to $39.45 billion.
• Current Quarter EPS: Anticipated to grow by 3.5% from the prior year to $2.73.

Stock Performance and Ratings

• Stock Growth: Shares have gained 30.5% over the past six months and 25.7% year-to-date, closing the last trading session at $97.42.
• POWR Ratings: Alibaba has an overall rating of B, which translates to a Buy.
  • Grade for Quality: B
• Industry Ranking: In the A-rated China industry comprising 41 stocks, Alibaba is ranked #18.

Investment Perspective

Alibaba's strategic partnerships and consistent financial performance make it a significant player in the global e-commerce and technology sectors. Investors looking to capitalize on the growth potential of emerging markets, particularly China, may find Alibaba an attractive addition to their portfolios.

Conclusion

Diversifying your investment portfolio with international stocks can provide exposure to growth opportunities that may not be available domestically. SAP SE, AstraZeneca PLC, and Alibaba Group Holding Limited each offer unique advantages across different sectors and regions.

• SAP SE: Leveraging technological advancements and strategic acquisitions to enhance enterprise software solutions.
• AstraZeneca PLC: Expanding its oncology portfolio and maintaining strong financial health in the pharmaceutical industry.
• Alibaba Group Holding Limited: Strengthening its global presence through strategic partnerships and solidifying its position in e-commerce and technology.

By incorporating these global stocks into your investment strategy, you can potentially enhance returns and reduce risks associated with regional economic fluctuations.