 |
Last week Procter & Gamble lowered its outlook for the fourth-quarter, and the company mostly pinned the reduced expectations on two things: Slow growth in developed markets and unfavorable foreign exchange rates.
That tells you just how important foreign markets — and especially faster-growing countries — have become to the world’s largest consumer products company.
Indeed, sales in foreign countries account for more than a third of Procter & Gamble’s total business.
And it isn’t just Procter & Gamble!
Of the 225 S&P 500 components that share full reporting information, more than 45 percent of total sales consistently come from overseas markets.
Consider Wal-Mart: The company’s international division, which operates 4,557 retail locations abroad, posted revenues of about $109 billion last year. That was about a quarter of WMT’s total sales, and it represented a sales increase of 12 percent from the previous year.
Or what about General Electric? While we might think of GE as the quintessential American company, more than HALF of its revenues come from foreign units. GE has major operations in Europe, China, Russia, India … and many other parts of the developing world.
Even American auto companies greatly depend on overseas customers. More than 50 percent of Ford’s revenues come from foreign markets. And GM, through a partnership, is one of China’s largest carmakers.
So overseas business is extremely important to a lot of U.S. companies … and it’s only going to become MORE important going forward. That’s especially true given everything taking place here at home and in other Western countries across the European continent.
Of course, don’t simply equate “faster-growing emerging markets” with the standard “BRIC” countries of Brazil, Russia, India and China.
In Fact, U.S. Companies Continue to Aggressively
Pursue More Opportunities in NEW Emerging Markets
To be sure, the four BRIC countries remain critical areas for investors to focus on. But they are not the only foreign markets you should be thinking about. After all, they’re certainly not the only areas that America’s smartest companies are investing in right now.
Every six months, KPMG International reports on merger and acquisition activity in emerging and high-growth-market countries. And according to its data on the second half of 2011, U.S.-based companies were the most aggressive in terms of making deals in these regions.
When looking at deals involving at least a 5 percent stake in a foreign company, U.S. firms booked 126 deals compared to just 81 for companies based in European countries, the second-biggest group of players in cross-border M&A.
Most interestingly, the hottest deal spot was Central America and the Caribbean!
 |
|
Source: KPMG International
|
All told, U.S. companies signed 25 new deals there in the second half of last year. India also remained active with 22. Brazil was home to 14, and other South American countries accounted for another 14.
China was actually the coldest spot on the list with just 12 major M&A agreements!
And also notice that Africa — an entire continent that is equally ripe with opportunity — hasn’t even begun to reach its potential yet.
Three Great Ways to Start Playing the Emerging Markets Today …
Obviously you can get an investment stake in faster-growing parts of the world simply by owning some of America’s biggest and best companies. Better yet, most of these firms tend to be the kind of diversified dividend-paying firms that I continually recommend to you anyway.
However, you can also look at buying foreign blue chip companies that may have even greater exposure to certain parts of the world. They often understand the intricacies of Asia or Latin America better than U.S. or European firms … and in many cases they have special relationships with regional political leaders that give them “home court” advantages. Their stocks can also kick off solid dividends, which is why I frequently recommend them as a great way to round out an income portfolio.
Lastly, you can also buy smaller companies that are operating in a particular fast-growing or rapidly-emerging economy. These are the kind of stocks that often end up getting snapped up by the bigger players … or turning into huge growth stories on their own.
And please note that these approaches are not mutually exclusive. I think it’s perfectly reasonable to pursue all three types of companies at the same time — especially since study after study continually reinforces the idea that American investors are almost universally under-allocated to investments outside the U.S. in the first place.
Best wishes,
Nilus
