In this article, we will discuss the 7 Most Undervalued Foreign Stocks to Buy According to Analysts.
Chinese stocks have seen a strong rally since September-end as numerous supportive measures have reignited the investors’ confidence. The Hang Seng China Enterprises Index, which includes Chinese stocks listed in Hong Kong, saw an increase of ~28% in the past month. As a result, Invesco’s chief investment officer stated that this rally resulted in some stocks becoming overvalued. Elsewhere, Germany continues to face its struggles, with expectations that its economy will contract by 0.2% in 2024. However, the German government expects that the economy should return to growth in 2025, with the GDP anticipated to rise by 1.1%, slightly up from the previous forecast of 1.0%, reported Euronews. By 2026, growth should reach 1.6% as a result of private consumption and stabilizing inflation.
Regarding the Japanese economy, after a two-day meeting that ended on 20 September, the BOJ maintained the overnight call rate target at 0.25%.
Chinese and Japanese Economy- The Road Ahead
Fortune reported that the stimulus measures announced by Beijing consisted of rate cuts, freeing-up of cash at banks, robust liquidity support for stocks, and a pledge to end the long-term fall in property prices. The surge seen in Chinese equities in the recent past reasserted their influence on broader emerging-market gauges and weighed over the performance of fund managers running underweight positions.
Experts opine that the durability of such a rebound should influence the year-end performance of index-tracking funds. This will also have direct implications for nations having trading and investment links with the Chinese economy. Recently, The World Bank announced that China’s economic growth is expected to further slow in 2025 despite the stimulus measures. The World Bank projects that China’s growth will decline to 4.3% in 2025, down from an expected 4.8% in 2024. However, Mint reported that the recent surge in Chinese stock prices might demonstrate anticipations of increased inflation. This will raise nominal profits and the expectation of stronger corporate and economy-wide fundamentals. Therefore, experts are now more confident that China might turn its economy around and report much stronger growth in the last quarter and 2025.
While the market experts appear to be optimistic about Chinese equities, they should know that the Japanese economy is on a strong footing. Russell Investments believes that consumer spending stands at healthy levels and corporate earnings should continue to grow. While the investment firm expects that BoJ will remain cautious when considering future rate increases, it highlighted that capital expenditure intentions from businesses are strong.
Chinese Stimulus Measures to Help Foreign Economies
Mint also reported that the positive spillovers to the global economy will be greater if fueled by healthier Chinese economic fundamentals rather than just increased nominal prices. Talking about the developed economies, Australia and South Korea are expected to benefit the most, especially if there is even a partial recovery in the Chinese real-estate sector. This is expected to fuel demand for Australian iron ore, along with other raw materials.
South Korea, which has been tagged as a home to key suppliers in Chinese regional and global value chains, should witness increased demand for its industrial exports. If China’s willingness to spend increases, countries producing luxury products or attracting Chinese tourists, like France and Italy, are expected to benefit significantly over the upcoming months and around the next Chinese New Year in January.
Our Methodology
To list the 7 Most Undervalued Foreign Stocks to Buy According to Analysts, we used a Finviz screener to screen for ex-US companies. Next, we narrowed the list by choosing the stocks that are trading lower than the forward earnings multiple of 23.52x (since the broader market trades at ~23.52x, as per WSJ). Finally, we ranked the chosen ones according to their potential upside, as of 10 October. We also mentioned the hedge fund sentiments around each stock, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Most Undervalued Foreign Stocks to Buy According to Analysts
7) H World Group Limited (NASDAQ:HTHT)
Forward P/E Ratio as of 10 October: 19.80
Average Upside Potential: 14.35%
Number of Hedge Fund Holders: 24
H World Group Limited (NASDAQ:HTHT) is a hotel operator and franchisor.
Recently, H World Group Limited (NASDAQ:HTHT) highlighted strong growth strategies, which included a focus on lower-tier cities that created significant growth opportunities and solidified their expertise in the broader Chinese market. Its focus on lower-tier cities resulted in significant growth opportunities. H World Group Limited (NASDAQ:HTHT) remains committed to an asset-light model, with plans to reward shareholders via dividends and share buybacks.
H World Group Limited (NASDAQ:HTHT) recently highlighted that the globalization strategy has been progressing, with an emphasis on Europe, Asia, and Africa. In the recent earnings call, the company expressed optimism regarding the long-term RevPAR growth, demonstrating a positive correlation with GDP growth and inflation. The transformation to an asset-light model should improve margins via product and service upgrades.
H World Group Limited (NASDAQ:HTHT)’s confidence in the long-term growth of RevPAR, supported by macroeconomic factors, should continue to support its revenue growth. With the company continuing to leverage its brand for expansion in new markets like the Middle East and Asia Pacific, it is poised for strong growth over the upcoming quarters. Legacy-Huazhu is expected to focus on product upgrades, excellent service, and membership programs in a bid to enhance the competitive advantage of H World and promote a sustainable increase in average revenue per available room.
As per Wall Street, the shares of H World Group Limited (NASDAQ:HTHT) have an average price target of $48.40.
6) CAE Inc. (NYSE:CAE)
Forward P/E Ratio as of 10 October: 17.58x
Average Upside Potential: 14.80%
Number of Hedge Fund Holders: 18
CAE Inc. (NYSE:CAE) offers simulation training and critical operations support solutions in Canada and other countries.
In Q1 2025, CAE Inc. (NYSE:CAE) showcased a healthy demand for its civil market solutions and a strong increase in its backlog, hinting at healthy future revenues. Despite facing some headwinds, the company is optimistic regarding its long-term outlook and expects growth in both revenue and margins. The company anticipates doubling of in-service commercial jets over the upcoming 20 years.
CAE Inc. (NYSE:CAE) anticipates the easing of narrowbody aircraft supply constraints and the resumption of pilot hiring in H2 2025. Also, it expects secular growth in the defense sector, considering the increasing budgets and demand for training and simulation solutions. Notably, strategic defense programs and government outsourcing are contributing to the strong backlog. Wall Street continues to expect a meaningful operating leverage moving forward, primarily as it continues to optimize operations and capitalize on healthy underlying demand in key sectors.
The strong book-to-bill ratio in CAE Inc. (NYSE:CAE)’s Civil Aviation segment exhibits strong underlying demand. This places the company for potential growth after the temporary industry headwinds subside. The Defense sector demonstrated promising signs of improvement, with better-than-anticipated margins and a favourable outlook for FY 2025.
Artisan Partners, an investment management company, released its first quarter 2024 investor letter. Here is what the fund said:
“In the industrials sector, we had two detractors: CAE Inc. (NYSE:CAE) and U-Haul. CAE is an aerospace and defense company providing pilot training via either the sale of full flight simulators or third-party training services. When we established our position in CAE in May 2022, the business was still recovering from the impacts from COVID. Lack of investor interest offered us an attractive entry point to purchase a high-quality business that was well positioned in a growing industry having high barriers to entry. Over its history, the company has transformed itself from a flight simulator equipment maker to primarily a services company with a high share of recurring revenues. Though the civil business is growing well on positive commercial traffic trends, disappointing margins in the defense segment continue to weigh on investor sentiment. Management now expects defense margins to remain mid single digits versus prior expectations of an inflection in the second half of the year, citing legacy low-margin contracts and delays in new program awards. While progress on margins has been disappointing, CAE remains a good business, and the valuation is compelling on both an absolute basis and relative to the broader market as it now sells for just 11X normalized EBITA.”
5) Eni S.p.A. (NYSE:E)
Forward P/E Ratio as of 10 October: 7.30x
Average Upside Potential: 23.36%
Number of Hedge Fund Holders: 11
Eni S.p.A. (NYSE:E) is an integrated energy company. It explores and produces hydrocarbons in Italy and other countries.
Eni S.p.A. (NYSE:E) reported steady progress in its strategic 4-year plan, emphasizing profitability, growth, value realization, deleveraging, and a competitive distribution policy. The company continues to advance in its energy transition goals, with investments in biorefineries and renewable energy projects, aiming for net zero by 2030. Eni S.p.A. (NYSE:E) has been focusing on its core upstream activities and is advancing in the energy transition with new projects.
Eni S.p.A. (NYSE:E) continues to execute its disposal plan faster than expected, contributing to debt reduction and anticipating leverage to be well below 20% by the end of this year. The company has been witnessing strong demand for biofuels and expects the market to rebalance and revive its margins. Eni S.p.A. (NYSE:E)’s low carbon strategy consists of investments in carbon capture and storage (CCS) projects, that should provide value in reducing CO2 emissions.
Market experts opine that Eni S.p.A. (NYSE:E) should benefit from a higher oil price environment. Moreover, Wall Street remains optimistic about strategic initiatives that the company has undertaken, mainly in the context of an evolving energy market that increasingly values diversified investments and a balanced approach between fossil fuels and renewable energy sources. In Q2 2024, Eni S.p.A. (NYSE:E) delivered efficient growth and portfolio rationalization while, at the same time, maintaining a disciplined financial approach.
Analysts at Morgan Stanley raised shares of Eni S.p.A. (NYSE:E) from an “Equal-weight” rating to an “Overweight” rating, setting a $39.60 price target on 29th August.
4) Sony Group Corporation (NYSE:SONY)
Forward P/E Ratio as of 10 October: 16.37x
Average Upside Potential: 24.9%
Number of Hedge Fund Holders: 29
Sony Group Corporation (NYSE:SONY) is primarily engaged in designing, developing, producing, and selling electronic equipment for the consumer, professional, and industrial markets in Japan and internationally.
Market experts believe that Sony Group Corporation (NYSE:SONY)’s growth trajectory is expected to be aided by its asset-light business model and focus on content acquisition. The company’s significant investments in Sony Music and PlayStation and related game operations are expected to further enhance the company’s competitive edge. Over the past several years, Sony Group Corporation (NYSE:SONY) acquired numerous content-creation companies across games, music, and film/TV. It continues to witness the benefits of digital distribution which are providing it with more durable revenue streams.
In the recent earnings call, Sony Group Corporation (NYSE:SONY) highlighted that PlayStation 5’s growing base and solid software titles bolstered its Game & Network Services segment. The company’s new division, Sony Pictures Experiences, focuses on enhancing its live entertainment business. Market experts believe that this division should strengthen its position in the experiential live entertainment business. The company plans to continue producing larger sensors for ultra-wide angle and telephoto cameras. It targets to capitalize on the steady recovery of the global smartphone market.
While Sony Group Corporation (NYSE:SONY) remains vigilant about its competitors in the semiconductor market, it continues to focus on high-end product production. With a strong emphasis on high-value products, IP strengthening, and monitoring macroeconomic factors, the company has been positioning itself to navigate through potential headwinds while, at the same time, capitalizing on diverse revenue streams.
As per Wall Street, the shares of the company have an average price target of $108.00. Insider Monkey’s Q2 2024 database revealed that Sony Group Corporation (NYSE:SONY) was in the portfolio of 29 hedge funds.
3) Baidu, Inc. (NASDAQ:BIDU)
Forward P/E Ratio as of 10 October: 9.64x
Average Upside Potential: 25.30%
Number of Hedge Fund Holders: 42
Baidu, Inc. (NASDAQ:BIDU) is engaged in the provision of internet search services in China.
Baidu, Inc. (NASDAQ:BIDU)’s commitment to AI innovation remains evident in the scaling and affordability of its AI offerings, which include ERNIE models and the Apollo Go autonomous ride-hailing service. The company highlighted that Apollo Go transitioned to fully driverless services in Wuhan and has been testing its 6th generation autonomous vehicle, the RT6. Baidu, Inc. (NASDAQ:BIDU) continues to improve margins and enhance market share in the GenAI and LLMs market.
The company remains focused on enhancing its mobile ecosystem with AI technology to create long-lasting user value. Market experts remain optimistic about Baidu, Inc. (NASDAQ:BIDU)’s AI Cloud business, which has been witnessing accelerated growth as a result of strong demand for AI infrastructure and models. Also, its autonomous driving innovation, primarily Apollo Go, has been making strides toward commercial viability.
Wall Street believes that Baidu, Inc. (NASDAQ:BIDU)’s technological leadership and first-mover advantage in AI should strengthen its competitive position. The company has been exploring various business models and partnerships in a bid to scale up its robotaxi services. Baidu, Inc. (NASDAQ:BIDU)’s emphasis on innovation and market expansion, together with a commitment to making AI solutions more accessible, places the company favorably for future growth.
As per Wall Street, the shares of Baidu, Inc. (NASDAQ:BIDU) have an average price target of $128.75. Ariel Investments, an investment management company, released its first-quarter 2024 investor letter. Here is what the fund said:
“Alternatively, several positions weighed on performance. China’s internet search and online community leader, Baidu, Inc. traded lower alongside Chinese equities as intensifying problems in China weighed on investor sentiment during the period. The company continues to invest heavily in Artificial Intelligence (AI) and recently launched its generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”
2) NetEase, Inc. (NASDAQ:NTES)
Forward P/E Ratio as of 10 October: 12.03x
Average Upside Potential: 29.04%
Number of Hedge Fund Holders: 35
NetEase, Inc. (NASDAQ:NTES) operates as a leading internet technology company offering online services such as content, community, communication, and commerce.
Wall Street analysts expect that NetEase, Inc. (NASDAQ:NTES)’s long-term growth trajectory is expected to be supported by strong brand, user loyalty, and customer retention. In the recent earnings call, the company highlighted the success of its games, which includes Once Human and Naraka: Bladepoint Mobile, and their expansion throughout genres and platforms. Also, AI integration in game development resulted in the 200% YoY growth in AI-driven subscription services.
Wall Street expects that ongoing collaboration with Blizzard should yield future cooperation. NetEase, Inc. (NASDAQ:NTES) remains optimistic regarding the upcoming launches of Where Winds Meet and Marvel Rivals. The company continues to explore different genres in a bid to develop games suitable for the global market. NetEase, Inc. (NASDAQ:NTES) remains well-positioned for continued growth with a strong emphasis on AI technology and a diverse gaming portfolio. Moving forward, the development of new titles should help achieve future successes.
The robust R&D and operating capabilities built over the past 2 decades led to the formidable games portfolio of newer innovative hits, diversifying its offerings. The gross profit margin for games and related value-added services for Q2 2024 came in at 70.0% as compared to 69.5% and 67.4% for the preceding quarter and the same quarter of 2023, respectively. The QoQ and YoY increases were primarily because of changes in the product mix.
As per Wall Street analysts, the shares of NetEase, Inc. (NASDAQ:NTES) have an average price target of $110.18. Polen Capital, an investment management company, released its first quarter 2024 investor letter. Here is what the fund said:
“NetEase, Inc. (NASDAQ:NTES) is one of the top players in China’s video game industry and saw decent revenue growth in 2023, particularly in its games division, with profit growth close to 20%. The stock also continues to recover after gaming restrictions announced last quarter in China were not nearly as bad as first feared.”
1) Honda Motor Co., Ltd. (NYSE:HMC)
Forward P/E Ratio as of 10 October: 6.61x
Average Upside Potential: 29.10%
Number of Hedge Fund Holders: 12
Honda Motor Co., Ltd. (NYSE:HMC) is engaged in developing, manufacturing, and distributing motorcycles, automobiles, power, and other products in Japan and other countries.
Wall Street experts opine that Honda Motor Co., Ltd. (NYSE:HMC)’s operating profit margins are expected to be aided by the growth potential of its emerging market (EM) motorcycle and HEV operations. Moreover, the company’s strategy of vertical integration, primarily in the development of batteries and software crucial for competitiveness in the battery electric vehicle (BEV) era, should act as a primary tailwind.
Honda Motor Co., Ltd. (NYSE:HMC)’s emphasis on the current profitability of its ICE and HEV segments and preparations for potential competitiveness in the BEV market should continue to support its revenue growth in the near term. Given its focus on electrification, Honda Motor Co., Ltd. (NYSE:HMC) announced a plan to make investments to the tune of ~$65 billion in electrification and software by the fiscal year 2030. The company has doubled from its previous commitment.
This strategic move demonstrates its commitment to transitioning towards electric mobility and further strengthening its competitive edge. Moreover, Honda Motor Co., Ltd. (NYSE:HMC)’s vehicles are of high quality and reliable. This enables increased brand loyalty, which should support its long-term growth trajectory. During the quarterly results for the period ending June 2024, Honda Motor Co., Ltd. (NYSE:HMC) highlighted optimism around its automobile business operations. Apart from the strong sales of hybrid models, the favourable impact of pricing commensurate with improvement in product value, which resulted in increased profits.
As per Insider Monkey’s Q2 2024 database of over 900 hedge funds, 12 hedge funds were long Honda Motor Co., Ltd. (NYSE:HMC).
While we acknowledge the potential of HMC as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than HMC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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