In the 1990s, the S&P 500 Index averaged a 15.6% annualized return. That was better than any other ten-year period for U.S. common stocks since the high-flying 1920s. But so far in the 2000s, the S&P 500 Index has lost a cumulative 7% as the technology bubble came to a crashing end in 2000 while the broader market imploded, particularly in 2002. 

Some of the most compelling opportunities for 2005 and beyond lie in the oversold and undervalued health care, biotechnology and insurance sectors. Plus, the best earnings growth remain in commodities, driven by booming natural resource prices and growing profit margins for energy and mining companies. 

But to invest in most of these companies, you must invest overseas. That’s where the big values are as we begin 2005. One of the easiest ways to do so is by purchasing ADRs, or American Depository Receipts.

ADRs: The Easiest Way To Invest Offshore

Essentially, an ADR is a foreign stock traded in the United States, in U.S. dollars. By investing in an ADR, you participate in the profits or losses for that foreign company, including any foreign currency gains or losses. 
ADRs aren’t new. Nearly 80 years ago, the first ADR was a British company listed on the NYSE. Today, ADRs total over 2,000 issues representing over 70 countries. 

For example, if you buy Switzerland’s Nestle ADR (NSRGY or NSRGY.PK), you’ll benefit if the stock rises on the Zurich exchange, plus you’ll share in the foreign currency gain should the Swiss franc continue to rise against the U.S. dollar. While trading Nestle in its home market undoubtedly makes sense for European investors, the Nestle ADR provides easier access for most U.S. retail investors. Additionally, there are no withholding taxes and in most cases, trading costs are usually much lower.

Tracking your ADRs is easy with two great websites providing daily information plus in-depth ADR research. These include The Bank of New York (http://www.adrbny. com) and J.P. Morgan (http://www.adr.com). Yahoo Finance (http://finance.yahoo.com) also can track most ADR prices. 

When you purchase ADRs, one factor to bear in mind is liquidity—your ability to make transactions without too great a buy-sell spread. Most ADRs traded on the NYSE have good liquidity. This includes many large companies from the United Kingdom, France, Italy, Germany and even Brazil. But some OTC-listed ADRs of smaller companies might not have enough trading volume on a given day to buy without paying a significant premium to the bid price or sell without offering your shares at a big discount to the ask price. The key is to make sure you’re buying an ADR that is heavily traded so you’re always in a position to receive the best bid or ask price.