Over the past five years it was relatively easy to pick winning stocks overseas, as the overall category soared. But this year the challenge of picking the right foreign stocks has become much more difficult. Mutual fund executive Kirk L. Brown says investors can benefit by adopting a defensive strategy focusing on high-quality companies that can thrive in the face of economic adversity. This includes companies that pay dividends and that sell products consumers will always need, such as telephone service and pharmaceuticals. Two of Brown’s favorites…

Vodafone Group (VOD). This British corporation is the leading wireless phone carrier in Europe, and it’s also enjoying strong growth in the emerging markets. Because Europeans haven’t caught up to Americans in their cell phone usage, Vodafone should enjoy even greater growth in the future. Right now the average American uses a cell phone about 800 minutes a month versus just 150 to 170 minutes for Europeans. Vodafone also provides wireless data and broadband Internet access, and it owns a 45% stake in Verizon Wireless. Recent share price: $33.81.

Sanofi-Aventis (SNY). This French drug maker is Europe’s biggest pharmaceutical company and the third largest in the world. Sanofi-Aventis has many drugs in its pipeline that are now in later stage trials. The company should be introducing these new drugs in the next three to four years. Like Vodafone, the French company is selling at an attractive valuation and generating cash that can be used to repurchase shares or to boost its dividend. Recent share price: $37.90.

Source: Kirk L. Brown, CFA, a managing director who oversees the American Beacon International Equity Fund (AAIEX) and related funds. The fund had annualized returns of 20% for the five years ending February 5, 2008.

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