10 Stocks to Watch From the Best International Fund Managers

Should investors buy international stocks?

For many, it’s a complicated question. After all, investors often feel more “in-the-know” about companies domiciled in their home markets. On top of that, US companies generate a sizable chunk of their revenue outside of the US, providing US stock investors access to global growth. And international stocks have badly underperformed US stocks over time: The Morningstar Global Markets ex-US Index has significantly lagged the Morningstar US Market Index during the trailing three-, five-, and 10-year periods by a sizable margin.

Are International Stocks a Good Investment Today?

For many, investing in international stocks is less of a must-do and more of a why not. “It’s really about casting the net as wide as possible, opening yourself up to the full spectrum of opportunities,” notes Dan Lefkovitz, strategist with Morningstar Indexes. “Many leading global franchises, including companies dominant in the US market, are found across the globe. Great businesses at compelling prices can come from anywhere.”

To develop a shortlist of international stocks to watch, we’ve turned to some of the best stock-pickers among current active international fund managers by screening on the following:

• Actively managed funds that land in the foreign large-value, foreign large-blend, or foreign large-growth Morningstar Category.
• Funds with at least one share class earning Morningstar Medalist Ratings of Gold with 100% analyst coverage.
• Funds that hold 100 stocks or fewer as of their most recently reported portfolios.

Eight separate fund portfolios passed our screen.

10 Stocks to Watch From the Best International Fund Managers in 2024

These are the most popular stock picks among our list of the best international fund managers as of their most recent portfolios whose shares trade on a US exchange and that are covered by a Morningstar analyst. Data is as of July 19, 2024.

1. Novo Nordisk NVO
2. Novartis NVS
3. AstraZeneca AZN
4. UBS Group UBS
5. Rolls-Royce Holdings RYCEY
6. SAP SAP
7. TotalEnergies TTE
8. BNP Paribas BNPQY
9. RELX RELX
10. Compass Group CMPGY

This list is a good reminder that not every stock pick is a stock to buy: Most of the top stock picks on this list look fairly valued or overvalued today. As such, they make excellent watchlist candidates to buy on weakness.

Here’s a little bit about each of these stocks to watch, along with some commentary from the Morningstar analyst who follows the company. All data is as of July 19, 2024.

Novo Nordisk

• Number of best managers who own the stock: 4
• Morningstar price/fair value: 1.53
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Growth
• Sector: Healthcare

Novo Nordisk is the top stock to watch from our best managers in terms of overall weighting—and it’s also the most overpriced stock on the list, trading 53% above our $86.00 fair value estimate. The leading provider of diabetes-care products in the world, Novo Nordisk has carved out a wide economic moat, according to Morningstar. We expect the Danish drugmaker to continue to dominate in diabetes and obesity therapy innovation.

Here’s Morningstar strategist Karen Andersen’s commentary after Novo Nordisk’s most recent earnings release:

Novo Nordisk reported constant currency sales growth of 24% in the first quarter, in line with the 25% constant currency sales growth assumption we had built into our model for 2024. First-quarter growth was heavily driven by GLP-1 sales growth in diabetes (32%, mostly from Ozempic) and obesity (42%, mostly from Wegovy). Management increased constant currency sales growth guidance for 2024 by 1 percentage point (from a range of 18%-26% to a range of 19%-27%), and we’ve increased our sales growth assumption to 26%. We think operating income growth could be slightly higher at 29%, also at the high end of management’s updated guidance. This increased our fair value estimate from DKK 570/$84 to DKK 600/$86, but share prices are still 45% higher than our increased valuation. While we continue to see Novo Nordisk as a wide-moat firm, with strong intangible assets surrounding its cardiometabolic business, we think the high obesity drug demand and scarcity of supply have driven share prices above their intrinsic value. We assume that Novo Nordisk is capable of growing GLP-1 sales across indications from roughly $24 billion in 2023 to nearly $75 billion by 2031, prior to the patent expiration for semaglutide, the molecule in Ozempic and Wegovy. We think current share prices do not properly account for expected price declines and competition, let alone the risk of patients discontinuing therapy due to tolerability, cost, or long-term safety issues.

Novo’s first priority is increasing supply of its GLP-1 therapies, and we think progress with increasing supply of lower, starter doses in the US indicates they could be prepared to continue serving these patients at higher doses later in the year. In addition, Novo expects to complete the acquisition of three Catalent fill-finish sites by the end of 2024, which could help supplement capacity by 2026 as current contracts with other firms roll off.

Novartis

• Number of best managers who own the stock: 6
• Morningstar price/fair value: 1.01
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Core
• Sector: Healthcare

Novartis is the most widely held name among our list of best international stock-pickers: Six of our eight managers own the Swiss pharmaceutical giant. Patents, economies of scale, and a powerful distribution network support Novartis’ wide economic moat. Novartis differentiates itself by its sheer number of blockbusters, including Entresto for heart failure and Cosentyx for immunology diseases, notes Morningstar director Damien Conover. The stock currently trades in line with our fair value estimate of $105.00.

Morningstar’s Conover had this to say about Novartis’ latest earnings report:

We are holding steady to our $105/CHF 96 fair value estimate (ADR/local share class) following solid second-quarter results that, although slightly ahead of our projections, were not enough to move the valuation. We believe the market is appropriately valuing the stock, with a balanced view of the strength of the pipeline offsetting patent losses, setting up moderate growth over the next three years while also supporting a wide moat over the long term.

In the quarter, the firm's 11% operational sales growth was strong. However, the firm's largest drug Entresto (close to 15% of total sales) was a key driver (up 28%), and we expect the drug will face generic pressures starting in 2025. Additional generic pressure will also likely mount over the next two years, targeting several older drugs, including Sandostatin, Tasigna, and Promacta, that collectively represent close to 10% of total sales.

Offsetting the patent pressures, several other drugs continue to post rapid gains. In particular, multiple sclerosis drug Kesimpta (up 65%) holds the potential to exceed management's peak annual sales guidance of $4 billion based on leading efficacy and convenient dosing. Also, the firm's second-largest drug Cosentyx (which treats immunology diseases) grew 22%, led by new indications, but we expect slowing growth given competing drugs showing stronger efficacy. We remain below management's peak annual sales for Cosentyx of $7 billion. We are also 100 basis points below management's five-year compound sales growth from 2023-28. We expect modest upside to our fair value estimate if the firm can achieve its guidance.

Strong advancements in the pipeline hold the most potential for accelerating growth. We are most bullish on rare disease drug Fabhalta (approved in late 2023). Also, cardiovascular disease drug pelacarsen holds very high potential, but we need to see the pivotal clinical data (likely in 2025) before adding more substantial sales into our valuation model.

AstraZeneca

• Number of best managers who own the stock: 4
• Morningstar price/fair value: 1.01
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Healthcare

The third and final drugmaker on the list of top stocks to watch from the best international managers, AstraZeneca stock looks about fairly valued. We think its pipeline is among the strongest in the drug group, says Morningstar’s Conover. The stock of this wide-moat UK pharmaceutical company is worth $78.00 according to Morningstar.

Conover had this to say after AstraZeneca’s latest earnings report:

AstraZeneca reported strong first-quarter results that fell largely in line with our expectations, so we are holding firm to our fair value estimate.

In the quarter, total sales increased almost 20% operationally, but we expect a deceleration in growth over the next few years as patent losses increase. Cardiometabolic drug Farxiga (up 45%) was key to growth in the quarter as the drug now represents almost 15% of total sales. New indications are helping to provide a lift for the mature drug, but we expect generic launches to intensify in 2025, which will create a drag on future growth. Also, we expect biosimilar pressure on rare-disease drug Soliris to ramp in 2025, creating additional headwinds.

Offsetting the generic and biosimilar pressures, we expect continued growth from the cancer drug division (up 26%). New indications for Imfinzi, Enhertu, and Truqap should provide strong tailwinds for the division’s growth over the next three years. However, we do expect some pressure on lung cancer drug Tagrisso by J&J’s next-generation combination drugs Rybrevant/lazertinib, which could show a survival benefit versus Tagrisso later this year.

Additionally, the conversion from Soliris to the next-generation drug Ultomiris is progressing well, with Ultomiris now generating 16% more sales than Soliris.

On the pipeline, AstraZeneca continues to showcase its leading research and development strength, reinforcing its wide moat. We are increasingly optimistic about rare-disease drug Wainua (approved in late 2023), which should have data on the larger opportunity of cardiomyopathy in 2025. Also, breast cancer drug Truqap (approved in late 2023) is off to a solid start, generating $50 million in the quarter and key phase 3 data in triple-negative breast cancer and prostate cancer should be reported later this year, expanding the market potential for the drug.

UBS Group

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 0.97
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Core
• Sector: Financial Services

The core of Swiss financial services giant UBS is its global wealth management business focusing on high and ultra-high-net work individuals. But these days, the integration of Credit Suisse’s business is the firm’s main focus. The stock of this narrow-moat company currently trades nearly in line with our $31.50 fair value estimate.

Morningstar senior analyst Johann Scholtz expressed this take on UBS’ most recent results:

Narrow-moat UBS reported much better-than-expected results for the first quarter of 2024, yet we felt its management team struck a somewhat cautious tone during the earnings call. Potentially higher regulatory capital requirements will continue to weigh on the share price as UBS could not provide an update on the Swiss regulator’s position. Net new money inflows in wealth management continue, which suggests limited client attrition.

We think investors should be careful about extrapolating the robust first-quarter results to the full year. It is unlikely that the noncore unit will repeat the $1 billion net gain it booked on the legacy Credit Suisse positions it sold during the quarter. Also, the wealth management business benefited from a particularly strong quarter for transactional fees. UBS reported a return on common equity tier 1 capital of 9.6% for the quarter. Yet, management still believes that its previous guidance of a mid-single-digit return on CET1 is the likely outcome for fiscal 2024.

UBS did not shine any new light on potentially higher minimum capital requirements from the regulator. UBS has significant excess capital above its current regulatory minimum requirement, but higher capital requirements could limit its ability to return capital to shareholders. We are surprised that there has not been more interaction between the regulator and UBS before the regulator went public with its expectation that UBS will have to carry more capital in the future.

One of the major initial concerns around the integration process was that it would lead to material client and revenue attrition. Despite losing around 40% of the Credit Suisse wealth management relationship managers, UBS continues to book net new money inflows. We believe that net new money inflows will ratchet up once the integration is complete.

Rolls-Royce Holdings

• Number of best managers who own the stock: 3
• Morningstar price/fair value: 1.19
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Growth
• Sector: Industrials

Rolls-Royce Holdings looks about 19% overvalued to us today relative to our $4.81 fair value estimate. This UK company operates three core business segments: civil aerospace, power systems, and defense. We assign a narrow moat to Rolls-Royce thanks to the technical know-how and engineering expertise in the civil aerospace and defense segment, and high switching costs in the civil aerospace segment, explains Morningstar analyst Loredana Muharremi.

Here’s what Muharremi said about the company’s most-recent earnings release:

Narrow-moat Rolls-Royce delivered another strong set of earnings for 2023, with a record-high group profit margin driven by civil aerospace performance.

Although engine flying hours are still at 88% of 2019 levels, civil aerospace operating margin increased at 11.6% versus 2.5% in 2022 on the back of higher percentage of spare-part sales, increased time on wing benefiting long-term service-agreement contracts, price optimization, and cost efficiencies.

Defense sales increased by 11.4% organically versus 2022 driven by defense budgets expansion in most Western regions. Operating margin increased from 11.8% in 2022 to 13.8%, driven by pricing actions, cost efficiencies, and a higher percentage of customer-funded R&D. In the power generation business, revenue growth was up 18%, driven by strong sales of power solutions in both marine and mining, with margins increasing by 200 basis points compared with 2022 due to commercial optimization action and cost efficiencies.

Rolls-Royce more than doubled its free cash flow to GBP 1.3 billion from GBP 500 million in 2022, primarily driven by improvement in operating profit, despite supply chain challenges and engine flying hours still lower than 2019 levels.

Results confirmed that some of the structural improvements, mostly related to price contracts renegotiation and increased time on wing, were delivered ahead of schedule, boosting our confidence in further performance improvements as the company continues working on increasing the time on wing of its engines, and in extending the life span of spare parts. Rolls-Royce aims to increase the service life of its engines by 40% in the medium term, pushing the overhaul period from three years to over five years. This is being achieved by improving engine part durability, extending component life spans, and optimizing aircraft operation and maintenance.

SAP

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 1.37
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Technology

The first and only technology stock on our list of stocks to watch from the best managers, SAP is 37% overvalued relative to our fair value estimate of $144.00. Based in Germany, the narrow-moat company provides database technology and enterprise resource planning software to 440,000 customers in more than 180 countries, approximately 80% of which are small to medium-size enterprises.

Here’s what Morningstar senior analyst Dan Romanoff had to say after digesting SAP’s latest earnings:

We maintain our fair value estimate for narrow-moat SAP after the firm reported a robust first quarter that topped our revenue and margin expectations. Management reaffirmed 2024 guidance and reiterated its 2025 ambition, which we believe are supported by continued strategic pivots toward the cloud and business artificial intelligence, or AI, segments. Overall, we see results as solid and a continuation of recent trends. Although we continue to expect some churn due to forced cloud migration, we maintain our belief in SAP’s strong suite of offerings and the inherent switching costs associated with core software systems. Shares already incorporate the full benefits of the cloud transition and are overvalued, in our opinion.

Total revenue grew 8% year over year to EUR 8.0 billion, with cloud revenue contributing EUR 3.9 billion and recording a 24% growth year over year. Furthermore, the firm reported an impressive cloud backlog of EUR 14.2 billion, up by 27% over the year-ago period. Backlog outpacing cloud growth is heartening. We were encouraged to see the continued growth of “RISE with SAP” and “GROW with SAP,” which facilitate cloud migration and onboarding needs of existing customers and net-new customers, respectively. We are also pleased with the company’s strategic focus on business AI offerings like Joule, which automates common business transactions and human resources processes, and we anticipate it to continue building backlog and to support evolving customer expectations.

On profitability, non-IFRS operating margin was down 610 basis points year over year to 19.1%, yielding non-IFRS earnings per share of EUR 0.80. Margins were negatively affected by EUR 2.2 billion of restructuring expenses associated with the ongoing transformation program, partially offset by strength in cloud revenue.

TotalEnergies

• Number of best managers who own the stock: 3
• Morningstar price/fair value: 0.91
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Value
• Sector: Energy

The first international stock pick from the best managers that’s classified as a value stock, TotalEnergies looks only slightly undervalued relative to our $75.00 fair value estimate. This French integrated oil and gas company aims to grow energy production on all fronts while pursuing its ambition of net zero emissions by 2050 and delivering near-term cash flow growth even at relatively low oil prices.

Morningstar director Allen Good had this take on the firm’s most recent earnings:

No-moat TotalEnergies’ first-quarter adjusted net income fell to $5.1 billion from $6.5 billion in first-quarter 2023, largely due to lower gas prices and weaker refining margins. The decline in gas prices—the major European benchmark NBP is down 46% from a year ago—particularly weighed on integrated LNG results. Refining and chemical adjusted net income fell 41% year-over-year, largely due to weaker refining margins, which declined 21% from the prior year. Integrated power was a bright spot in the results as earnings increased 65% from a year ago as net capacity doubled. Oil and gas production decreased 2% from the year before to 2,461 thousand barrels of oil equivalent per day, excluding the impact of divested Canadian assets, production increased by 1.5% from the year before.

During the quarter, Total paid a dividend of EUR 0.79 a share, an increase of 7% from a year ago. As with the first quarter, Total will repurchase $2 billion in stock during the second quarter. That run rate implies a decline from 2023's $9 billion repurchase level, but $1.5 billion was tied to asset sales, implying an increase for 2024. Total maintains one of the highest targeted payout ratios of more than 40%.

Our fair value estimate of $75 is unchanged, as little has changed since Total announced its 2024 objectives a few months ago. Although shares remain fully valued, in our view, we continue to view Total as one of the more attractive options among integrated oils, given its prudent energy transition strategy and strong management team.

BNP Paribas

• Number of best managers who own the stock: 4
• Morningstar price/fair value: 0.75
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Value
• Sector: Financial Services

BNP Paribas is the most undervalued stock pick from our best international fund managers: The stock of France’s largest publicly traded bank looks 25% undervalued relative to our $46.00 fair value estimate. BNP Paribas has reported consistent earnings during the past decade, which is noteworthy when compared with its peers. We also think the bank is likely to benefit from market share gains in investment banking.

After examining recent results, Morningstar senior analyst Johann Scholtz noted:

BNP Paribas recorded a strong rebound in its first-quarter 2024 earnings, comfortably beating the company-compiled consensus estimates of revenue, operating expenses, and credit costs. Along with Lloyds Bank, BNP is one of our preferred names for investors who want to invest in European banks. We believe BNP’s discount rating relative to the average valuation of the European banking sector is unjustified. We expect BNP’s midcycle profitability to lag the European banking sector average slightly, but BNP has one of the most stable earnings track records of the European banks that we cover. Given its lower interest-rate sensitivity, we view BNP as a defensive option in the face of potentially lower interest rates.

BNP reiterated its guidance that it expects net profit above EUR 11.2 billion for fiscal 2024. Our expectation is around 5% below this, which aligns with consensus. BNP also indicated that it believes the second half of the year will be stronger than the first. This, combined with the solid first-quarter results, points to earnings comfortably ahead of guidance and market expectations. We will update our model shortly and could increase our EUR 85 per share fair value estimate.

Credit quality remained sound, with the two problem areas of Italy and personal finance reporting lower loan-loss provisions for the quarter. BNP is guiding a slight decline in its loan-loss provisions over the next two years, and it disclosed that its direct commercial real estate exposure is below 4%, with virtually no US commercial real estate exposure.

BNP reported a common equity Tier 1 ratio of 13.1%, which, compared with its target of a 12% CET1 ratio, suggests that BNP has less excess capital than many of its European peers. However, we believe that BNP should generate sufficient organic capital to comfortably support annual buybacks of around 2% of its current market value. BNP already offers a healthy 6% forward dividend yield.

RELX

• Number of best managers who own the stock: 4
• Morningstar price/fair value: 0.96
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low
• Morningstar Style Box: Large Growth
• Sector: Industrials

The second stock to watch on our list from the industrials sector, RELX stock looks about fairly valued. RELX, based in the UK, is a global provider of business information, analytics, and decision-making tools for professionals in various industries. It generates revenue mainly by creating and selling access to curated information databases, analytics, and journals. We think shares are worth $46.75.

Here’s Morningstar senior analyst Rob Hales’ commentary about the company’s recent results:

Wide-moat RELX’s first-quarter trading update indicated initial performance in fiscal 2024 is tracking in line with guidance and our expectations. Shares are trading flat intraday. We don’t expect to make a material change to our fair value estimate.

Revenue growth was described as strong across three of the four segments while revenue growth in the scientific, technical, and medical segment was described as good. Overall, growth continues to be primarily driven by the ongoing shift in business mix toward higher-growth analytics and decision tools.

Guidance for fiscal 2024 was unchanged. Overall, revenue growth, EBIT growth, and constant-currency EPS growth are expected to be strong. In the risk segment, revenue growth is expected to be strong with EBIT growth slightly exceeding revenue growth. In the STM segment, revenue growth is expected to be good with EBIT growth slightly exceeding revenue growth. In the legal segment, revenue growth is expected to be strong with EBIT growth exceeding revenue growth. In the exhibitions segment, revenue growth is expected to be strong with a further improvement in the EBIT margin.

Compass Group

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 1.03
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Consumer Cyclical

The final stock on our list of stocks to watch from the best international stock fund managers, UK-based Compass Group is the largest foodservice company globally. Foodservice remains a large fragmented global industry that offers Compass ample room to grow, according to Morningstar. The stock is trading near our fair value estimate of $27.80.

Morningstar Europe market strategist Michael Field had this to say about the company’s most-recent earnings:

Narrow-moat Compass Group delivered a solid first-half update. Organic revenue growth was up 11.2%, a strong performance. Clearly, growth is falling from the elevated levels of 2022 and 2023 but remains high as tailwinds persist. We view the negative share price reaction to these strong results as evidence of the high expectations built into Compass Group’s current share price. Compass Group shares screen as fairly valued relative to our fair value estimate.

Management modestly raised its full-year guidance to target 10% organic growth, from high single digits, and underlying operating profit growth toward 15%, from 13% previously. Operating margins remain below pandemic levels, but progress this year is encouraging, and we believe this will rectify itself over the next year or two. As contracts naturally mature and bring higher levels of efficiency, this brings cost savings and other potential opportunities for margin improvement.

Longer term, as Compass Group is the number-one catering company in the world, we believe it is well positioned to continue to take market share, as many smaller operators folded over the course of the pandemic. How long these tailwinds persist is another question, but the promise of 10% growth for another six months is encouraging.

Who Are the Best International Fund Managers?

Eight funds passed our screen and therefore qualify as our best managers.

1. Artisan International Value ARTKX
2. Causeway International Value CIVVX
3. Dodge & Cox International Stock DOXFX
4. Goldman Sachs GQC Partners International Opportunities GSINX
5. JPMorgan International Equity JIERX
6. MFS International Equity MIEIX
7. Oakmark International OAKIX
8. WCM Focused International Growth WCMIX

The foreign large-blend category is home to Artisan International Value, JPMorgan International Equity, and MFS International Equity. Causeway International Value, Dodge & Cox International Stock and Oakmark International land in the foreign large-value category. Lastly, Goldman Sachs GQG Partners International Opportunities and WCM Focused International Growth represent the foreign large-growth category.

What Are the Morningstar Economic Moat Rating, the Morningstar Fair Value Estimate, and the Morningstar Uncertainty Rating?

Morningstar thinks that companies with economic moats possess significant advantages that allow them to successfully fend off competitors for a decade or more. Companies can carve out their economic moats in a variety of different ways—by having high switching costs, through strong brand identities, or by possessing economies of scale, to name just a few. Companies that we think can maintain their competitive advantages for at least 10 years earn narrow economic moat ratings; those we think can successfully compete for 20 years or longer earn wide economic moat ratings.

Morningstar editors Margaret Giles and Lauren Solberg developed the methodologies and tools required to create this content.