Every day that the Dow jumps another 100 points and some random Internet stock goes through the roof, it gets harder to find a bargain in the U.S. stock market.

So if you're trying to rustle up some cheap stocks, you're going to have to head overseas.

Many international markets have trailed the U.S. this year. The S&P 500 is up 9.5% this year, and the Nasdaq has gained almost 20%. Meanwhile, European stocks are down. Asia has been weak from SARS, and Japan is still Japan.

Value manager David Herro of the ( OAKIX) Oakmark International fund is a good guide for investing abroad -- his fund's three, five and 10-year returns rank in the top 5% of all overseas offerings. In today's column, Herro weighs in on where he's shopping and what he's avoiding.

Europe

On the surface, Europe doesn't look like such a great place to invest your money. The economies of Germany, Italy and the Netherlands appear headed for recessions. The European Central Bank has been slow to cut interest rates. And some countries -- particularly Germany -- are slow in reforming their rigid labor and social policies that make it tough for companies to lay off workers and cut costs during tough times.

But all these worries make this region of the world prime hunting ground for inexpensive stocks. And Oakmark's Herro is taking advantage of the market weakness. "Today we're much heavier in Europe than we were two or three years ago," he says. "Three or four years ago, European blue-chips were prohibitively expensive. But today these stocks are cheap, especially given low inflation. Just look at the top 10 holdings in the fund."

Indeed, Oakmark's largest holdings are some of the best-known names in the U.K. and Europe: Ericsson ( ERICY), Vivendi Universal ( V), GlaxoSmithKline ( GSK) and Diageo ( DEO).

Some of these stocks are sporting dividend yields of 3% and over -- about double the yield on the S&P 500 right now. And if a foreign company's stock also trades here in the U.S., then its dividend is eligible for the new 15% dividend tax rate. That's another thing that makes those yields enticing.

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