5 Dow Stocks With Insignificant Exposure to Europe

LONDON -- Sentiment in the world's financial markets is currently dominated by the fear that Greece will abandon the euro, the common currency used by most European Union member states.

But Greece is really more of a sideshow, as the biggest worry is that its problems will produce a knock-on effect that ultimately causes the governments of Italy, Portugal and Spain to default on their own debts. It doesn't help that some European politicians, having started the fire by borrowing too much, are now fanning the flames for short-term political advantage.

Since Italy is the third-largest debtor nation on the planet, after Japan and America, in modern-day parlance it is "too big to fail and too big to bail." An Italian default would be catastrophic for continental Europe, producing banking crises not just in Italy but also in France and Germany, whose banks are already under pressure because of the amount they have lent to Greece.

The worst-case scenario would be a depression throughout the eurozone, which in turn would reduce the demand for American-made goods and services. Two days ago we looked at five Dow stocks with a substantial exposure to Europe, and now we're going to consider the other side of the equation -- five companies that do little or no business in Europe and are thus fairly well protected against any fallout from across the Atlantic.

We don't do much business in Europe
The following five stocks are members of the Dow Jones Industrial Average (INDEX: ^DJI  ) , and their sales to Europe represent a very small part of their business.

Company

European Exposure 
(% of Net Sales)

Market Cap 
(Billions)

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American Express (NYSE: AXP  ) 12%* $66 Add
Bank of America (NYSE: BAC  ) 8%* $77 Add
Home Depot (NYSE: HD  ) 0% $74 Add
The Travelers less than 5%** $25 Add
Wal-Mart Stores (NYSE: WMT  ) Trivial; see below $202 Add

Sources: All geographic sales figures are taken from the respective companies' most recent annual reports (but see below for Wal-Mart). Market cap data is from Yahoo! Finance.
*American Express and Bank of America group their sales in Europe along with those made in the Middle East and Africa.
**Travelers provides a single sales figure for all foreign countries, and its most recent report showed that its revenues from outside America were just 4.6% of the total.

It isn't possible to calculate Wal-Mart's European sales from the company's official reports because all of its sales outside America are recorded through its international division. This grouping accounted for 28.4% of Wal-Mart's total sales last year, but of the 26 other countries in which it operates, only one is European.

That country is Britain, and because Britain doesn't use the euro, its exposure to the eurozone financial crisis is much less than that of most other European Union member states. I reckon Wal-Mart's sales to continental Europe are close to zero.

Other ways to protect your portfolio
Many Dow 30 constituents do a lot of business in Europe. As a result, you may find that if you want to avoid Europe you have to look outside the Dow and instead turn to companies in the S&P 500.

Two sectors that immediately stand out are railroads, in particular Union Pacific, with its focus upon the Midwest, the West, and the Pacific Coast ports rather than the East Coast, and commercial real-estate specialists such as Vornado Realty Trust, whose assets are predominantly located in New York and Washington, D.C.

Let me finish by adding that, while a lack of European exposure may look like a bonus right now, global diversification in the long run might well be an essential characteristic of successful modern business.

As such, you may wish to consider the U.K. stock that's tempted Warren Buffett to invest more than $1 billion for its worldwide expansion potential. Full details are in this exclusive report -- it's free.

Further investment opportunities:

Tony Luckett owns shares in Union Pacific. The Motley Fool owns shares of Bank of America. Motley Fool newsletter services have recommended buying shares of Home Depot, creating a diagonal call position in Wal-Mart Stores, and creating a write covered strangle position in American Express. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On May 24, 2012, at 10:58 PM, MHedgeFundTrader wrote:

    The Euro went through the old 2012 low at $1.260 like a hot knife through butter. On the breach, a lot of momentum programs automatically kicked in and doubled up their short positions. That is what has taken us all the way down to the high $124 handle in the cash. Let’s see how the market digests this breakdown. The commitment of traders report out on Friday should be exciting, as we already have all-time highs in short positions in the beleaguered European currency.

    The problem is that any good news whispers or accidental tweets on the sovereign debt crisis could trigger ferocious short covering and gap openings which the continental traders will get a head start on. So again, this is not the low risk trade that it was months ago.

    Still, the 2010 lows at $1.18 are now on the menu. I would sell all the “good news” rallies from here two cents higher. Aggressive traders might consider selling penny rallies, like the one we got today. Notice that the Euro is rallying into the US close every day. This is caused by American traders covering shorts, not wishing to run them into any overnight surprises.

    The Mad Hedge Fund Trader

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