Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Invest Defensively: Look Abroad

This is a brutal time for investors. Since the start of 2008, the S&P 500 has lost more than half its value. Harvard and Yale had losses of more than 20% in their highly esteemed endowments -- since June. Hedge funds, if they aren't closing down, are liquidating rapidly to cash out disillusioned investors.

All this turmoil has led to a massive flight to safety. Investors have abandoned once-hot emerging markets en masse for the safety of America. Treasuries are yielding next to nothing because investors are willing to take no return in exchange for the perceived stability of U.S. government debt.

But they have it exactly backwards.

Comfort food
In times like these, equity investors traditionally turn to blue-chip stocks for comfort -- household names like Coca-Cola (NYSE: KO  ) and General Mills (NYSE: GIS  ) that make the stuff people buy no matter how high unemployment goes.

Blue chips are respected for their strong brand names, solid operations and an ability to grow year after year. In the past 15 years, Johnson & Johnson (NYSE: JNJ  ) has increased revenues every year (at an average of 11% per year) while boosting its operating margin from 17% to 25%.

And that’s despite the 2001 and current recessions.

How can a company with more than $60 billion in annual sales put up these types of numbers? The foresight of the company's talented management team, who realized that growth would have to come from foreign markets, is a key factor.

Pack your bags
Acquisitions and product expansion have been a big part of Johnson & Johnson's success, but so has geographic expansion. Over the last five years, sales in the U.S. only grew an average of 5%, while international sales compounded at 14%. The percentage of Johnson & Johnson's sales that come from outside the U.S. grew from 40% to 49%.

And Johnson & Johnson isn't alone in this. General Electric (NYSE: GE  ) has seen international sales rise from 42% of total sales to 53% of sales since 2003. Caterpillar (NYSE: CAT  ) , the world's largest manufacturer of heavy machinery, has received more than half of its sales from foreign markets for years.

Go where the growth is
These and many other blue-chip companies are turning to foreign markets to supply their growth. While the U.S. remains the largest economy in the world, our growth prospects are relatively modest -- and, at least in the short term, negative. Meanwhile, globalization has provided countries like India, China, Turkey, and Chile with the opportunity to launch their economies into the 21st century, and they have been taking advantage of it.

Since 2003, the United States has experienced average real GDP growth of just 2.5% per year. Over the same time frame, that figure was 10.5% for China, 8.3% for India, 6.0% for Turkey, and 4.7% for Chile.

It’s counterintuitive to think of international investing as defensive investing, but that’s exactly what this economic data suggests.

Hold on a second
Admittedly, the global economic slowdown will hurt growth, but everything is relative. While America's GDP growth is headed into negative territory, the IMF is estimating next year's GDP growth in emerging economies will merely slow to around 3%, with some countries -- such as China and India -- expected to grow 5% or more. It’s no wonder that in these tough times, companies continue to scour for profits outside U.S. borders.

While the blue-chip companies mentioned above do provide some exposure to the rapidly growing markets of the world, with market caps already measured in the hundreds of billions, they don't provide the tremendous upside potential boasted by the smaller, lesser-known companies that call emerging markets home. During its aforementioned outstanding 15-year period, Johnson & Johnson's stock provided shareholders with fantastic returns. However, over the past five years, returns have basically been flat.

Meanwhile, even with the decline of the emerging markets at the end of 2008, companies like Motley Fool Global Gains picks Sasol (NYSE: SSL  ) , a South African alternative energy company, and HDFC Bank (NYSE: HDB  ) , the second-largest private bank in India, have each provided five-year returns greater than 140%. That’s because they are smaller and more focused on developing markets than their multinational counterparts. And their markets have years, or even decades, of strong growth ahead of them.

So, take a page from your favorite blue-chip companies and add some international flavor to your investment portfolio. To get a head start, check out all the Global Gains recommendations by signing up for a 30-day, risk-free trial.

Nate Weisshaar will only use Johnson's No More Tangles shampoo on his luscious locks, but does not own any shares of the companies mentioned above. Johnson & Johnson and Sasol are Income Investor recommendations. Coca-Cola is an Inside Value recommendation. Sasol and HDFC Bank are Global Gains recommendations. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 843356, ~/Articles/ArticleHandler.aspx, 10/24/2016 9:27:57 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 minutes ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
CAT $85.99 Down -0.34 -0.39%
Caterpillar CAPS Rating: ***
GE $28.92 Down -0.06 -0.21%
General Electric CAPS Rating: ****
GIS $60.89 Up +0.18 +0.30%
General Mills CAPS Rating: ****
HDB $72.41 Down -0.19 -0.26%
HDFC Bank CAPS Rating: ****
JNJ $113.61 Up +0.17 +0.15%
Johnson and Johnso… CAPS Rating: ****
KO $42.56 Up +0.43 +1.02%
Coca-Cola CAPS Rating: ****
SSL $28.40 Down -0.01 -0.04%
Sasol CAPS Rating: *****