5 international value shares with a positive outlook: analyst

Aussie investors looking to diversify their share portfolios could consider investing some of their funds overseas.

Value shares or growth shares?

Rarely over the many years that I've covered share markets has that debate been as prevalent as it is today.

That's largely because the modern world finds itself in a wholly novel position. One with near-zero interest rates, seemingly inexhaustible levels of quantitative easing (QE), and massive pent up demand from businesses and consumers exiting pandemic lockdowns.

With growth shares broadly seen to be more dependent on easy money, value shares are increasingly in focus as rising inflation figures raise the spectre of rising interest rates.

Investor happily looking at rising share price on laptop.

Image source: Getty Images

The name of the game is patience

Growth shares can potentially deliver outsized gains in a relatively shorter time frame. That's often because investors are betting on big growth in future earnings.

Investors in value shares, on the other hand, need to be patient.

Josh Gilbert, eToro market analyst, told The Motley Fool that the strategy behind investing in value shares "is all about waiting out short-term market fluctuations in order to benefit from long-term returns. Beyond that, value investors require an eagerness to learn, and the ability comprehend a company's fundamental information and white papers".

Value shares are also a great means to tap into the power of compounding. 6% annual gains may not sound terribly exciting after the year we've just had. But via the magic of compounding, 6% annual gains will see you double your money in 12 years.

As Gilbert points out, "When you reinvest the returns and dividends earned from value stocks, your profit will grow significantly over time and your earnings will eventually begin to generate earnings of their own, with minimal extra work required."

He also told us that investing in value shares is generally less risky than most short-term investment strategies. That goes back to patience. Value investors with long-term horizons don't need to get ensnared in daily share price moves.

The downside to investing in value shares

"The biggest con is that generally value companies hide from plain site and undervalued shares worth investing can be difficult to identify," Gilbert said. "It can also take a long time for an undervalued stock to return to its intrinsically fair price. Value investors may have to hold their positions for years until the market sentiment changes in their favour."

The post-pandemic market rout was particularly painful for investors in value shares, which tend to be more closely aligned to overall economic health. With economies across the world going into reverse last year, most traditional value companies sold off heavily.

5 international value shares with a positive outlook

Gilbert left off with a list of 5 US-listed traditional value stocks.

Target Corporation (NYSE: TGT) and Walmart Inc (NYSE: WMT), he said, "are dividend-paying retail stocks that often perform well when the economy is booming".

In the financial sector, he said that JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co (NYSE: WFC) are popular value stocks:

These companies' price to earnings ratios are very low compared to the market average. JPMorgan Chase & Co's PE ratio is also currently lower than the average PE ratio of the financial sector. This is often a flag for investors that the stock may still be undervalued.

Then there's Johnson & Johnson (NYSE: JNJ).

According to Gilbert:

Healthcare stocks such as Johnson & Johnson are also known as value shares. Healthcare is one of the most recession-proof sectors in the economy. Johnson & Johnson are currently developing a COVID-19 vaccine, but its primary revenue source comes from pharmaceutical sales. The company has a steady revenue stream and also pays a dividend.

Gilbert said that, overall, the outlook for value shares is positive. "Value stocks have effectively been out of favour for many years as most investors focused on tech. However, we now see that investors are picking up value shares with cheaper valuations after a difficult 2020."

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson. Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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