Internationally, U.S. Stacks Up

8/6/2012


The U.S. economy has settled into a stubbornly sluggish recovery — no amount of cajoling from the Fed has managed to accelerate the pace. The housing market appears to be stabilizing, but growth and animal spirits are restrained by weak hiring, worries regarding Europe's debt and China's growth, soaring student debt, and a general lack of direction from Washington.

WORLD'S TOP 15 ECONOMIES
The International Monetary Fund estimates the world's economic output will top $80 trillion this year, more than five times the size of the U.S. economy.
Estimated
2012 GDP
($Trillions)
---------- Annual Gross Domestic Product Growth ----------
--------- Estimated ---------
Country
2010
(%)
2011
(%)
2012
(%)
2013
(%)
United States
15.29
3.0
1.7
2.0
2.3
China
11.44
10.4
9.2
8.0
8.5
India
4.52
10.8
7.1
6.1
6.5
Japan
4.50
4.4
(0.7)
2.4
1.5
Germany
3.14
3.6
3.1
1.0
1.4
Russia
2.41
4.3
4.3
4.0
3.9
Brazil
2.32
7.5
2.7
2.5
4.6
United Kingdom
2.29
2.1
0.7
0.2
1.4
France
2.25
1.7
1.7
0.3
0.8
Italy
1.87
1.8
0.4
(1.9)
(0.3)
Mexico
1.68
5.6
3.9
3.9
3.6
South Korea
1.57
6.3
3.6
3.5
4.0
Spain
1.43
(0.1)
0.7
(1.5)
(0.6)
Canada
1.41
3.2
2.4
2.1
2.2
Indonesia
1.14
6.2
6.5
6.1
6.6
World
80.33
5.3
3.9
3.5
3.9
Sources: The World Factbook, International Monetary Fund.

U.S. annual gross domestic product is projected to rise about 2% for full-year 2012, an improvement from the 0.4% average from 2009 to 2011 but well below the average of 2.9% for the 15 years that ended in 2008.

But while the U.S. isn't burning up the track, it looks better than Europe. Aside from Germany, many of the European Union's larger economies are treading water or contracting. Economists worry that aggressive austerity policies have driven some countries over a fiscal cliff of government spending cuts and tax hikes.

Ultimately, weakness in the U.S. and Europe will hurt exports from China, which averaged 10% annual economic growth over the past 30 years. China grew at a 7.8% annualized rate in the first half of this year and is expected to grow 8.0% for the full year. Even as China's economy downshifts, it still benefits from an evolving middle class of nearly 250 million, or 18% of the population, up from 3% in 2001. The middle class could top 600 million by 2020 according to the researcher Brookings Institution, putting China's consumer spending on par with the U.S.


S&P 500 REVENUE BREAKDOWN

Sector
U.S.
Europe
Asia
Other
Energy
38
18
7
38
Materials
42
24
12
22
Technology
44
14
19
23
Industrials
57
17
14
12
Health Care
60
17
6
16
Consumer Staples
63
7
3
28
Consumer Discretionary
73
10
3
14
Financials
80
8
7
5
Utilities
96
0
1
3
Telecom
100
0
0
0
Source: RBC Capital Markets, Capital IQ.

Companies in the S&P 500 Index generate about 45% of their revenue outside the U.S., according to a study by RBC Capital Markets. Sectors especially sensitive to Europe include materials (24% of revenue) and energy (18%), as shown at right. Most exposed to Asia are technology (19% of revenue) and industrials (14%). Consider these numbers estimates, as it can be difficult to pin down geographic exposure.

Currency fluctuation could complicate the international growth story. Several S&P 500 companies have complained that the strong U.S. dollar is dragging down international sales. The euro has lost 14% versus the dollar over the last year.

To counter the overseas uncertainty, we advise investors looking for foreign exposure to focus on multinational companies that still have a significant U.S. presence. One such stock is reviewed below.

Visa ($129; V) says its growth drivers remain healthy. In the June quarter, Visa partnered with Russia's largest grocery chain and Indonesia's largest gas station. Both countries present attractive opportunities; cash still accounts for more than 80% of consumer spending in Russia, and the middle class is rapidly expanding in Indonesia. Visa, which has minimal exposure to Europe, is also making investments to expand in the Middle East and East Africa. With 44% of sales coming from overseas, Visa is a Buy and a Long-Term Buy.

MULTINATIONALS WITH U.S. GROWTH
All 11 of the recommended stocks listed below generate at least 20% of their sales overseas but managed double-digit sales growth in the U.S. in the last fiscal year.
--- Sales, Last Fiscal Year ---
1-Year Growth
3-Year Annual.
------ Growth ------
Company (Price; Ticker)
In
Billions
($)
% From
U.S.
% From
Int'l
Markets
U.S.
Sales
(%)
Foreign
Sales
(%)
U.S.
Sales
(%)
Foreign
Sales
(%)
AGCO ($44; AGCO)
8.8
20
80
19
30
0
2
Agilent Technologies
($38; A)
6.6
31
69
14
25
3
5
Alliance Data Sys.
($130; ADS)
3.2
71
29
17
6
23
4
Apache ($86; APA)
16.8
36
64
42
36
6
14
Apple ($611; AAPL)
108.2
39
61
46
82
31
68
Chevron ($110; CVX)
236.3
41
59
18
27
(3)
0
EMC ($26; EMC)
20.0
53
47
15
20
10
11
Exxon Mobil
($87; XOM)
433.5
55
45
27
27
32
(15)
Google ($633; GOOG)
37.9
46
54
25
33
18
22
Intel ($26; INTC)
54.0
16
84
28
23
15
12
Visa ($129; V)
9.2
56
44
10
19
12
16

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