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Investing Specialists

Our Four Favorite International Stocks for 2009

Quality is key this year.

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As we enter a new year there is excitement in the air about stock market possibilities. I am the editor and strategist of Morningstar's InternationalInvestor newsletter. While I remain concerned about the global economic situation and how that will affect stock markets around the world, there are stocks that are well positioned regardless of the current economic situation.

In today's environment it is particularly important to buy high-quality stocks. I manage a real-money portfolio--the Passport Portfolio--for InternationalInvestor. In the portfolio I am looking for international stocks with moats--or competitive advantages--that make it more difficult for other companies to compete with them. Right now it is also critical that firms have solid balance sheets. Because it's difficult to obtain credit, companies need to be able to finance the business at reasonable rates, which can't be done with overleveraged firms. In a recession it also helps to have businesses with stable demand. When money is tight and people have to choose where they are going to spend their hard-earned paycheck it helps to be in a business that is a necessity and not a nicety.

One way of identifying businesses that are necessary is to look at how difficult it is to project future results. At Morningstar, every company that we cover is assigned a fair value uncertainty rating based upon how difficult it is for the analyst to project future results in our proprietary discounted cash-flow models. Those businesses in which the analysts have the most confidence in their estimates have a low fair value uncertainty rating. As the analysts' confidence decreases the uncertainty rating increases to medium, high, very high, and finally extreme when there is a decent chance of bankruptcy or something affecting the business that is unpredictable.

Allan C. Nichols does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.