How to Save Your Portfolio

What do McDonald's (NYSE: MCD  ) , Coca-Cola (NYSE: KO  ) , and PepsiCo (NYSE: PEP  ) have in common? Not only are they American icons, solid long-term performers, and among the world's best-known consumer brands, but all three are being saved by their international exposure right now.

McDonald's, for example, reported its U.S. sales were down 0.7% in January -- data that in and of itself would have caused McDonald's stock to drop when it was reported on February 9. Yet McDonald's stock was up more than 1% that day, not too shabby for a $70 billion mega cap. The reason? McDonald's reported that sales in Europe and Asia were both up more than 4%.

Further, when the company baked currency effects, it reported that sales rose more than 9%. That's just another benefit of doing business in other countries as the dollar weakens.

So it goes
It was a similar story at both Coke and Pepsi. While Coke's overall sales volume increased 5% overall, it grew 29% in China, 20% in India, and 8% in Brazil. This outstanding international performance prompted Coke's CFO to note on the company's conference call that "our emerging markets are recovering from the global recession at a quicker rate than our developed markets."

As for Pepsi, its sales in Asia, the Middle East, and Africa were up 12% during 2009 versus sales that were basically flat in North America. Further, the company benefited from a huge currency boost. While earnings per share were up just 6% in constant currency, they increased 17% thanks to the dollar's fall in value against other world currencies this year.

Imagine that
Think about if McDonald's, Coke, or Pepsi only did business in the United States. They would be growing slowly (if at all), they would be making less money, and their stocks would be worth far less. In a down U.S. economy, their international exposure saved them in 2009.

Now think about your investment portfolio. Does it have any international exposure? Are you benefiting from the faster growth and currency diversification benefits that places such as China, India, and Brazil offer investors today? Because that's what will save your own portfolio over the next 5 to 10 years as growth here in the U.S. slows, just as its saved McDonald's, Coke, and Pepsi. In fact, Pepsi's CEO Indra Nooyi says that she will continue to accelerate the company's growth in developing markets.

That's a good business decision for them, and you should be pursuing the same strategy with your investments.

Some options
How can you go about putting some international exposure in your own portfolio? One way, of course, is to buy multinationals such as McDonald's, Coke, and Pepsi that have made doing business in emerging markets a part of their strategic road maps. Each one of these companies already earns more than 40% of their revenue outside of the U.S. today, and that percentage will only continue to increase.

Yet American companies that succeed abroad are more the exception than the rule since cracking a new market requires a lot of local knowledge. This is why even big names such as Coke and Wal-Mart (NYSE: WMT  ) have local partners -- Coca-Cola FEMSA (NYSE: KOF  ) and Wal-Mart de Mexico, respectively -- just over the border in Mexico, a market that one might not expect to be all that different from our own.

Companies that don't seek out this detailed local knowledge, on the other hand, often encounter disaster. A looming example of that is Abercrombie & Fitch (NYSE: ANF  ) , which just opened a flagship store in Tokyo in December. Yet despite the fact that the popular concepts in Japan today are lower-priced "fast-fashion" names such as Uniqlo and H&M, Abercrombie is doubling its prices in Tokyo. Further, locals are reporting that the store staff is scaring off Japanese shoppers by greeting them in English and showing a lot of skin. This will not end well.

How this applies to you
This is why it's important to get your international exposure not just through multinationals, but through the best local operators as well. At the end of the day, it's these companies that will benefit most from growth in their local markets and you, as an American shareholder who buys their shares in dollars, will get the currency benefit as well. This is why we advised our Motley Fool Global Gains members to not only buy Coca-Cola in order to gain exposure to rural China, but also to buy shares of a number of domestic Chinese plays, including China Marine Food (AMEX: CMFO  ) .

It's top local operators such as China Marine that we specialize in finding for Global Gains members who are looking to increase their international exposure and save their portfolios from a falling dollar and stagnant U.S. economy.

If you'd like to do the same and check out the rest of our picks, click here to join Global Gains free for 30 days. There is no obligation to subscribe.

Tim Hanson is co-advisor of Motley Fool Global Gains. He owns shares of China Marine Food. China Marine and Wal-Mart de Mexico are Global Gains recommendations. Coca-Cola and Wal-Mart Stores are Motley Fool Inside Value recommendations. Coca-Cola and PepsiCo are Motley Fool Income Investor selections. The Fool has established a bear put spread position on Abercrombie & Fitch. Pepsi is an Income Investor selection. When it wants to be hip, the Fool's disclosure policy starts calling itself "D-Pol."


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  • Report this Comment On February 20, 2010, at 3:53 PM, AvianFlu wrote:

    I have many individual foreign stocks, especially Chinese, that CAPS will not let me add to picks. Since MF apparently advocates diversifying through foreign stocks, is there a way I can suggest some tickers to add?

  • Report this Comment On February 20, 2010, at 5:58 PM, kayakmastr wrote:

    Right on target. The US economy is tanking. It cannot grow when confronted by deficit spending. Opportunities lie elsewhere.

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