In this piece, we will take a look at the ten best ADR stocks to buy now. If you want to skip our introduction to ADRs and the benefits and drawbacks of buying them, then check out 5 Best ADR Stocks To Buy Now.
A fundamental tenet of either a business or a financial education is the concept of diversification. On the business or managerial side of things, diversification refers to expanding a firm's product or market portfolio to create multiple revenue streams that are spread across different geographies. Most of the world's biggest companies, such as Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) try to follow this approach, and Apple in particular benefited from diversification in its latest quarter as while its revenue from the iPhone was disappointing, its Services segment continued to perform well.
On the financial side, diversification refers to spreading out an investment portfolio across different sectors. It follows the age old principle of "don't put all your eggs in one basket" and one way in which professional investors diversify their investments is through what is called an Efficient Frontier. This involves plotting a portfolio's measure of risk (i.e. its Standard Deviation) and its expected returns on a graph and then comparing multiple portfolios to see which is riskier, which offers more return, and which is a perfect balance of the two.
However, while portfolio planning is a rather tedious process that requires mathematical grunt work, there are other ways in which a regular investor can try their hand at diversification. One such strategy it to turn outwards and take a look at the global corporate landscape. After all, there are stock markets all over the world, and while investing in say, the Taiwanese Stock Exchange (TWSE) might be a bit complicated, there is a way to grow foreign exposure in an investment portfolio by buying stocks listed on U.S. exchanges such as the NASDAQ or the New York Stock Exchange (NYSE).
This can be done through buying what are typically referred to in the financial world as American Depository Receipts (ADRs). An ADR is issued by a bank operating in America, such as JPMorgan Chase & Co. (NYSE:JPM). So let's say JPMorgan owns 1000 shares of the Taiwan Semiconductor Manufacturing Company (NYSE:TSM) in Taiwan. TSMC's shares are traded as Taiwan Semiconductor Manufacturing Company Limited (TPE:2330.TW) in Taiwan. The bank can decide that since TSMC is one of the largest and most advanced chip manufacturing companies in the world, there is considerable demand for its shares in the U.S. So, JPMorgan can decide to issue ADRs that trade in the U.S., which represent one full unit, less, or more of TSMC's shares that are traded in Taiwan. Of course, a firm can also issue its own ADRs which are called sponsored ADRs.
Additionally, while diversification is good, the main question on anyone's mind when investing is whether the money being spent is worth it and can grow in the future. On this front, data from BlackRock sheds more light on the benefits and drawbacks of investing in foreign companies. Analyzing data between 1972 and 2022, the investment firm first shows that for the decade that ended in 2022, international stocks outperformed U.S. stocks in only two of these years, namely 2017 and 2022. However, over the course of the five decades, international stocks delivered superior performance for nearly half of the time period, and a deeper look at the data shows that their out performance increases when the American stock market is under stress. For instance, BlackRock analyzes Morningstar's data to study two time periods. The first is where U.S. stock returns were less than 4% and the second is where the returns were less than 6%. For the former, international stocks saw superior returns in all 45 of the time periods being analyzed, while in the latter, they outperformed 96% of the time or in 54 out of the 56 time periods being studied.
This would suggest that it's prudent to focus on international firms when domestic stocks in America are not performing well. However, while this would appear to be a sound principle to follow on the surface, the fact still remains that an investing decision involves taking a clear eyed approach to a multitude of factors to ensure that there aren't any surprises. Currently, both Europe and China, two of the world's biggest economic regions after the United States, are not performing well. Chinese under performance in particular has created quite a bit of turmoil in global markets recently, as it is one of the reasons behind a recent unsavory oil production cut by Saudi Arabia. This cut has pushed oil prices back to multi month high levels, and generated even more uncertainty about the ability of central banks to curtail inflation by raising interest rates.
With these details in mind, let's take a look at some top ADR stocks, with some notable picks being Alibaba Group Holding Limited (NYSE:BABA), Linde plc (NYSE:LIN), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
10 Best ADR Stocks To Buy Now
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Our Methodology
To compile our list of the best ADR stocks to buy, we first made a list of the 20 biggest firms with ADRs based on their market capitalization. Then, the number of hedge funds that had bought their shares during this year's second quarter was determined through Insider Monkey's database of 910 funds. Out of these, the top ten ADR stocks that hedge funds are buying are as follows.
HDFC Bank Limited (NYSE:HDB) is an Indian regional bank headquartered in Mumbai, India. It has operations in several Middle Eastern and Asian countries. Its stock has see sawed this year, after dropping in March during the regional banking crisis and then again in July.
As of Q2 2023, 38 out of the 910 hedge funds part of Insider Monkey's database had held a stake in HDFC Bank Limited (NYSE:HDB). Out of these, the firm's biggest shareholder is Andreas Halvorsen's Viking Global since it owns 9.3 million shares that are worth $649 million.
HDFC Bank Limited (NYSE:HDB) joins Linde plc (NYSE:LIN), Alibaba Group Holding Limited (NYSE:BABA), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in our list of the best ADRs to buy.
AstraZeneca PLC (NASDAQ:AZN) is a British drug manufacturer that was one of the first to develop a coronavirus vaccine. The firm had some good news for investors in September as a European body recommended its lung cancer vaccine.
After digging through 910 hedge funds for their second quarter of 2023 investments, Insider Monkey discovered that 41 had bought the firm's shares. AstraZeneca PLC (NASDAQ:AZN)'s largest hedge fund investor among these is Rajiv Jain's GQG Partners since it owns a $1.5 billion stake.
Shell plc (NYSE:SHEL) is an oil major that has also diversified its operations to become a crucial player in the liquefied natural gas (LNG) market. The firm has been in the news lately for the wrong reasons as it reported a cybersecurity breach at a site in Australia that led to some former employee data being compromised.
During this year's June quarter, 43 hedge funds out of the 910 that were polled by Insider Monkey had invested in Shell plc (NYSE:SHEL). The company's biggest hedge fund shareholder is Ken Fisher's Fisher Asset Management through a $1.3 billion stake that comes courtesy of 21.9 million shares.
Novo Nordisk A/S (NYSE:NVO) is one of the largest and oldest drug manufacturers in the world. Headquartered in Denmark, the firm provides medicines for a variety of medical ailments such as diabetes and hormone system disturbances. Novo Nordisk A/S (NYSE:NVO)'s Ozempic drug for weight reduction is one of the more popular treatments of its kind in the market, and the firm posted strong second quarter earnings results as it beat analyst EPS estimates by a wide margin of $1.23. It is also one of the few stocks that is rated Strong Buy on average by analysts.
By the end of June 2023, 43 out of the 910 hedge funds part of Insider Monkey's database were Novo Nordisk A/S (NYSE:NVO)'s shareholders. Jim Simons' Renaissance Technologies is the largest investor among these since it owns a $1.5 billion stake.
Any list of the top ADRs and foreign stocks to buy would be incomplete without the Dutch industrial equipment manufacturer ASML Holding N.V. (NASDAQ:ASML). ASML is the only company in the world that is capable of building advanced chip manufacturing machines that can produce semiconductors on the 3-nanometer and lower nodes. This lends it a key competitive advantage, as its products are essential for chip manufacturers.
By the end of Q2 2023, 55 hedge funds out of the 910 polled by Insider Monkey had held a stake in ASML Holding N.V. (NASDAQ:ASML). Out of these, the biggest shareholder is Ken Fisher's Fisher Asset Management due to its $3.4 billion investment.
Alibaba Group Holding Limited (NYSE:BABA), ASML Holding N.V. (NASDAQ:ASML), Linde plc (NYSE:LIN), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) are some top ADR stocks.
