(09/13/13) The Best Foreign DRIPs

The most important reason to consider foreign stocks is that by doing so, you broaden your opportunity set. The larger the fishing pond, so to speak, the more chances you have of catching big fish, suggests Chuck Carlson, editor of DRIP Investor.

Thus, for the same reason that investors should consider small, mid, and large US companies, so too, should they include foreign stocks when searching for attractive opportunities.

To be sure, investing overseas has some risks, such as political and economic risk, currency risk, and interest rate and inflation risk. There is also information risk; there have been instances of fraudulent accounts with some foreign companies.

Due to these risks, the investment vehicle of choice for investing overseas has been mutual funds and exchange-traded funds.

Despite these risks, owning quality foreign stocks makes good investment sense. Over the long-term, growth in certain foreign economies should outstrip that of the US, and owning that growth should help your portfolio.

Another reason to look abroad is that a number of quality foreign stocks currently offer very competitive dividends and yields.

For investors who prefer to own individual stocks—and I put myself in that category—it is as easy to buy certain foreign stocks as it is US stocks, via the hundreds of foreign companies offering American Depositary Receipt (ADR) direct-purchase plans.

Buying individual foreign stocks became easy for any US investor with the advent of American Depositary Receipts. ADRs are securities that trade on US exchanges and represent ownership in shares of foreign companies.

Investors buy and sell ADRs just as they buy and sell US stocks. ADRs are quoted in US dollars and pay dividends in US dollars. And those dividend payments, in many cases, receive the current preferential tax treatment afforded qualified dividends paid by US companies.

One of my favorites is Baidu (BIDU), the Chinese search-engine company. You may recall I selected Baidu as one of my favorite turnaround stocks at the beginning of 2013.

The stock was trading for around $100. After a weak first half of the year, the shares have caught fire in the last two months.

While competition seems to be growing in its primary market, I remain a fan of these shares and expect this volatile stock to trend higher over the next 12 months.

For investors looking for growth but also income, I especially like three health-care related stocks—Fresenius Medical (FMS), Novo Nordisk (NVO), and Smith & Nephew (SNN).

Fresenius, based in Germany, is a world leader in kidney dialysis services. Novo Nordisk, based in Denmark, is a huge player in diabetes treatment. United Kingdom-based Smith & Nephew is a leader in orthopedic implants.

All of these areas represent growing segments within the global health-care market. I would feel comfortable owning any or all of these stocks.

I've highlighted my favorite ADRs. These stocks typically score well in our Quadrix stock-rating system, and have decent track records, and strong market positions.