Stocks to Buy in 2013: Don't Miss the New Developed Market Leaders

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When looking for stocks to buy in 2013, many investors turn to the markets that outperformed the Standard & Poor's 500 Index in 2012.

For example, they might like Germany. The MSCI iShares Germany Index Fund (NYSE: EWG) soared more than 32% in 2012.

That's far better than the 15% gain from the S&P 500. It's also much stronger than the 15% gain from the iShares MSCI EAFE Index Fund (NYSE: EFA), which tracks developed-market equities in Europe, Australia, Asia and the Far East.

But amid slowing growth and frothy equity valuations, German stocks appear unlikely to continue such performance in 2013.

That's why investors should check out these other developed market players ready to soar in 2013. They're all expected to deliver gains that could rival Germany's explosive 2012 profits.

Stocks to Buy in 2013: A Pharma Fix-Up

Teva Pharmaceuticals Industries Ltd (NYSE ADR: TEVA) was a developed-market laggard in 2012.

The Israeli company's shares fell 7% in 2012, meaning the stock has fallen far short of returns for stodgy Merck & Co. Inc. (NYSE: MRK), up 8%, and Pfizer Inc. (NYSE: PFE), up 17%. Teva's gains were more on par with Johnson & Johnson (NYSE: JNJ), the 2012 laggard of major U.S. pharmaceuticals.

But Teva has the potential to rebound in 2013.

The company is looking to cut $1 billion to $2 billion in costs over the next five years while streamlining operations.

Another part of the potential resurgence is Teva's new focus on its branded drugs. Teva is the world's largest generic drug maker, but with price declines and competition with generic drugs arriving faster than ever before, Teva's renewed focus on its branded offerings could be a catalyst for the stock in 2013.

Wall Street has a $46.24 one-year price target on the stock, a 24% premium to where it closed in 2012.

A Grocer Primed for a Comeback

Facing low margins and ever-increasing competition from the likes of Costco Wholesale Corp. (Nasdaq: COST) and Wal-Mart Stores Inc. (NYSE: WMT), traditional grocery store operators have struggled.

But a Belgian company, Delhaize Group (NYSE ADR: DEG), appears primed for a rebound.

The company, which owns Food Lion and other brands, saw its shares plummet more than 25% in 2012 despite a surprisingly resilient Belgian economy.

Among reasons to expect better performance in 2013: The company has pared its inventory as a percentage of assets by about 55 basis points in the third quarter. That's significant because too much inventory drains cash flow.

And DEG does compensate investors for their patience: The shares yield 4% and the dividend has not been interrupted since the company began paying it in 2001.

The one-year price target is $62.98, a 55% gain from its 2012 closing price of $40.57.

Dialing for Dividends

Foreign dividend-paying stocks often have better yields than U.S. companies in the same industry.

That's certainly the case with France Telecom ADR (NYSE: FTE) when measured against AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ).

France Telecom has a dividend yield of 15.79%, compared with AT&T's 5.39% and Verizon's 4.79%.

France Telecom's yield is so high in part because its U.S.-listed shares have plummeted 29% in 2012. That's largely the result of the Eurozone debt crisis and France's loss of its AAA credit rating.

The company also recently announced a dividend cut so it's likely the yield will decline for all the wrong reasons.

Still, there are reasons to be optimistic about FTE stock.

For starters, the shares are cheap. France Telecom trades for less than seven times 2013 earnings and just 0.82 times its book value. That makes the stock cheaper than European telecommunications rivals such as Telefonica S.A. ADR (NYSE: TEF) and Vodafone Group Plc ADR (NYSE: VOD).

Verizon's forward P/E is more than double France Telecom's and Verizon's price-to-book ratio is more than triple FTE's.

While FTE's woes in its home market, where mobile phone competition is intensifying, have drawn a lot of attention, it's important not to overlook the fact that FTE is one of the dominant telecom names in Africa, a continent viewed by many as the last great investment frontier. France Telecom's Orange unit, the company's Africa brand, is the world's fifth-largest mobile phone carrier.

And FTE is poised for growth in Africa, where mobile penetration remains low compared with the United States and developed Europe, but could represent nearly 14% of the world mobile phone market by 2017.

The one-year price target for FTE is $14.30, a 29% gain from its $11.05 closing price in 2012.

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  1. John Braica | January 7, 2013

    You know that FET has cut it's dividend significantly.

    http://www.bloomberg.com/news/2012-10-25/france-telecom-cuts-dividend-projection-as-earnings-drop.html

    The owner of the Orange brand, saying it’s coping with a more difficult environment than expected, will pay a dividend of at least 80 cents ($1.04) each for 2012 and 2013, as much as 41 percent lower than last year. The cut is the second this year and marks a drop from a 2011 dividend of 1.40 euros.

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