Where is the lion's share of the world's biggest companies headquartered? The United States, by far. U.S.-based companies make up nearly 70% of the total market cap of the largest 100 companies globally in 2022, based on a PwC report.
But that doesn't mean there aren't plenty of opportunities for investors outside of the country. Warren Buffett, one of the greatest investors ever, certainly realizes this. Buffett currently owns seven international stocks. And one stands out as the best of the bunch.
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More than meets the eye
His Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) 13F regulatory filings reveal only five stocks based outside of the U.S. Two of them are headquartered in Brazil but incorporated in the Cayman Islands -- digital banking provider Nu Holdings(NYSE: NU) and IT solutions provider StoneCo(NASDAQ: STNE).
Liberty Latin America(NASDAQ: LILA)(NASDAQ: LILA.K) isn't based in a Latin American country, as its name might suggest. The telecommunications company is instead headquartered in Bermuda, although it operates throughout the Caribbean and Latin America.
Diageo(NYSE: DEO) is the only European company in Berkshire's portfolio. The beverage alcohol giant is based in London, England. Buffett also recently made a $4 billion bet on Taiwan Semiconductor Manufacturing(NYSE: TSM), which unsurprisingly is based in Taiwan.
Buffett also owns shares of two other companies that don't trade on major U.S. stock exchanges and aren't included in Berkshire's 13F filings. He's owned a stake in Chinese electric vehicle maker BYD(OTC: BYDD.F) since 2008. Berkshire also owns 6.2% of Japanese trading company Itochu(OTC: ITOCF).
Logical elimination
Which of these international stocks owned by Buffett is the best? I think we can rule a few out by the process of logical elimination.
Three of the non-U.S. companies in which Buffett has invested haven't been consistently profitable over the past year. Nu Holdings posted positive earnings in the third quarter of 2022 but lost money in the previous quarters this year. It's the same story for StoneCo. Liberty Latin America has alternated between making money and losing money quarter by quarter.
BYD is consistently profitable. However, investing in stocks based on China could be very risky right now with the uncertainty in the country related to COVID-19 and the unrest about the government's handling of the healthcare crisis.
Best of the bunch
That leaves three stocks in consideration -- Diageo, Itochu, and Taiwan Semi. I can see why Buffett likes each of these international stocks. But I think we can use three criteria to determine the best of the bunch.
First, it's important to assess each company's growth prospects. My view is that Taiwan Semi wins on this front. For one thing, the semiconductor maker is already growing its revenue faster than either Diageo or Itochu.
Second, look at the valuations. All three of these stocks are relatively cheap right now. Itochu is the least expensive with shares trading at 7.4 times trailing-12-month earnings. However, Taiwan Semi has a reasonable forward price-to-earnings multiple of 13.7. The stock has also been clobbered the most of the three, with its share price down more than 30% year to date.
Third, apply the "Buffett test." Which of these stocks is Buffett most excited about right now? I think the answer to this question is clearly Taiwan Semi. The stock makes up 1.4% of Berkshire's total portfolio, making it the conglomerate's biggest stake in a company based outside the U.S. Buffett has also recently initiated this large position, indicating his bullishness about the company's prospects.
Several of Buffett's international stocks could be worthy of consideration by investors who aren't multibillionaires. But I think that Taiwan Semi stands out as the best of the bunch.
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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, Byd, StoneCo, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Diageo Plc and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.
