Foreign value
Emerging markets, while more volatile, present opportunity for accelerated growth.
By David Stires, FORTUNE writer

NEW YORK (FORTUNE) - Here we followed John Templeton's advice to hunt for bargains in many markets. In countries from Japan to Mexico, we looked for stocks selling below their book values or at low P/E levels, as well as firms with accelerating earnings growth or expanding margins.

Unlike their U.S. rivals, many international pharma companies aren't suffering from a rash of patent expirations. European drugmakers AstraZeneca (Research) and Sanofi-Aventis (Research) were two of our best-performing foreign picks last year, rising 37 percent and 16 percent, respectively. We're recommending them again.

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And we're sticking with Vodafone Group (Research), despite its rocky year. As the company continues to roll out its next-generation 3G service, Clyde McGregor of the Oakmark Global fund says profits should recover. Meanwhile, Vodafone generates substantial free cash flow, which it's using to fund stock buybacks and a generous 4.8 percent yield. We still like this call.

The stocks
  • Many countries around the globe are growing much faster than the U.S., and so are their stock markets.
  • Emerging markets have been hot lately, but they can suffer drastic declines, so keep most of your foreign stake in developed countries.
  • Search for stocks selling at low price/earnings and price/book multiples, as well as stocks with accelerating earnings and increasing margins.
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Foreign value «click a ticker for latest data»
Company Price
Mkt cap
P/E ratio
Why we like it
AstraZeneca (AZN) $55 $41-$56 $86.40 17 10% 2.40% Pharma giant is using $4.5 billion in free cash to buy back stock and pay dividends.
Diageo (DEO) $67 $55-$69 $51.40 17 12% 3.20% World's largest spirits maker is seeing double-digit growth at top brands.
Petroleo Brasileiro (PBR) $89 $46-$107 $56.70 8 7% 2.70% Brazil's state-owned oil giant trades at a discount compared with U.S. competitors.
Sanofi-Aventis (SNY) $47 $40-$49 $131.10 14 6% 2.00% Drugmaker specializing in heart and cancer medicine has robust pipeline.
Telefonos de Mexico (TMX) $21 $18-$26 $23.30 8 8% 3.60% Mexico's dominant telecom is one of the most profitable in the world.
Total (TOT) $66 $56-$72 $162.00 10 7% 3.00% French oil giant is rapidly increasing production, with years of strong growth ahead.
Unilever (UN) $23 $21-$24 $38.70 16 4% 3.60% Huge packaged-food firm has stable of dominant brands, from Lipton to Ben & Jerry's.
Vodafone Group (VOD) $24 $19-$28 $154.80 13 9% 4.80% Shares of world's No. 2 wireless-phone company are unreasonably cheap.
Criteria include low price/earnings and price/book ratios, rising profit margins, and accelerating earnings growth. *Wall Street estimates for the next three to five years.