Investors can gain international exposure through multinationals that trade on New York as American Depositary Receipts (ADRs). To qualify as ADRs, they have to conform to U.S. accounting and listing requirements, which cuts their risk.
These two foreign firms are among the leaders in their industries and are expanding in growing markets.
CANON INC. ADRs (New York symbol CAJ; www.canon.com) gets 52% of its revenue by making office equipment, mainly printers and copiers.
It also makes consumer products, such as cameras and inkjet printers (38% of revenue), and industrial components, including chips and other parts for TV sets, medical gear and mobile devices (10%).
Demand for printers and other business products is slowly improving with the overall economy. The low Japanese yen also makes Canon’s products cheaper in other countries.
As a result, its sales rose 7.2% in yen in 2013, but they fell 11.2% in U.S. dollars, to $35.5 billion from $40.0 billion. Likewise, earnings rose 2.6% in yen but fell 15.0% in dollars, to $2.2 billion from $2.6 billion. Earnings per ADR declined 14.3%, to $1.91 from $2.23. Each ADR represents one Canon share.
The company gets 80% of its sales from outside Japan. At the same time, it continues to focus on pricier digital cameras with interchangeable lenses. That helps offset falling compact digital camera sales as more people take pictures with smartphones.
Canon spends 8% of its sales on research, which should help it expand to new markets. For example, it is now using its expertise to develop surveillance cameras.
Canon’s $1.41 dividend yields 4.5%.
Philips sees earnings rise in the wake of major restructuring plan
PHILIPS ELECTRONICS N.V. ADRs (New York symbol PHG; www.philips.com) gets 41% of its revenue by making health care products, such as X-ray and magnetic resonance imaging (MRI) scanners.
The company also makes lighting (36% of revenue) and consumer electronics, such as appliances and electric shavers (20%). Licensing revenue and other services supply the remaining 3%.
Philips continues to benefit from a major restructuring plan that includes efficiency improvements and cutting 4% of its workforce. The company has also sold its less profitable video and audio products business, which makes TV sets and CD players.
Thanks to these moves, Philips earned 1.2 billion euros, or 1.27 euros per ADR, in 2013 (1 euro = $1.52 Canadian; each ADR represents one Philips common share). In 2012, it lost 77 million euros, or 0.09 euros per ADR. Revenue fell 0.5%, to 23.3 billion euros from 23.5 billion. Excluding acquisitions and the impact of exchange rates, revenue gained 3%.
Another part of Philips’ growth plan involves expanding in developing areas like Asia and Latin America. In 2013, its revenue in these markets rose 11% and accounted for 36% of the total.
Philips spends 7.5% of its revenue on research, which helps it keep developing innovative products. For example, it recently launched its energy-efficient EPIQ ultrasound system, which produces medical images that are sharper than current scanners.
The company’s $0.98 dividend yields 2.8%.
In the latest edition of Wall Street Stock Forecaster, we look at how the yen will likely affect Canon’s exports in 2014 as well as examining the company’s earnings outlook. We also consider Philips’ prospects for growth and profits for 2014. We conclude with our clear buy-hold-sell advice on these two stocks.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
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With the fierce competition in technology, research spending is one of the most important factors we look at with companies like Canon and Philips. With tech and electronics stocks like these, do you pay special attention to the level of research spending? Do you look at the company’s stated goals in research to see if the money is being well spent? Has this approach helped you make successful buys? Has it helped you avoid stocks that appeared to be falling behind in the research wars?
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