The Best Growth Is Overseas

11/7/2016


With the U.S. economy stuck in low gear, many investors seek companies operating in fast-growing foreign markets. The International Monetary Fund (IMF) estimates the U.S. economy will grow only 2.2% next year, up from 1.6% in 2016. While an increase from this year's rate, the 2017 figure falls well short of many emerging or developing markets, including giants India (7.6% growth expected) and China (6.2%).

In fact, among the 190 countries tracked by the IMF, 134 are expected to grow gross domestic product (GDP) faster than the U.S. in 2017. To be sure, many foreign economies are tiny and barely move the overall needle. For example, Libya is expected to show the fastest growth at 13.7%. But that economy is estimated at just $51 billion, compared to some $19 trillion for the U.S. Collectively, the global economy is expected to expand 3.4% next year.

The potential for better growth outside the U.S. is a key profit driver. In the following paragraphs, we discuss two companies with the size and skill to tap faster-growing markets to help sustain earnings. And while currency fluctuations could complicate matters, both appear positioned for solid growth.

Few companies match the global reach of Apple ($112; AAPL). The company generated $140 billion in foreign sales in fiscal 2016 ended September — more than the total revenue for all but three stocks in the S&P 500 Index over the past 12 months. Europe is Apple's largest market outside the U.S., accounting for 23% of revenue. Greater China represented about 22% of sales, followed by Japan at 8%. Over the last three years, sales in China have grown at a 22% annualized clip. In the September quarter, Apple's per-share earnings fell 15% to $1.67, topping the consensus by a penny. Revenue declined 9% to $46.85 billion. Sales rose 3% in Europe and 10% in Japan but tumbled 30% in greater China. For the December quarter, management projects overall sales to climb slightly. Apple, with a Quadrix® Overall score of 88, is a Buy and a Long-Term Buy.


With operations in 40 countries, Disney ($92; DIS) is focused on expanding its footprint in Asia. Tokyo Disneyland, the company's first international park, opened in 1983. In June, the company launched Shanghai Disney Resort, its largest foreign investment. In 2015, 23% of revenue came from outside North America, with Asia-Pacific accounting for about 8% of total sales. Over the last three years, foreign sales have grown at a healthy 5% annualized rate. Disney should announce September-quarter results on Nov. 10. The stock, with a Quadrix Quality score of 95, is a Long-Term Buy.


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