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The 3 Best Countries for Tech Investors

http://www.fool.com/investing/international/2011/10/20/the-3-best-countries-for-tech-investors.aspx

Tim Beyers
October 20, 2011

Do U.S. companies still rate top consideration when it comes to investing in technology? Some will say undoubtedly say yes. Our shores are home to Silicon Valley and the nearly equally legendary Route 128 corridor outside Boston. The world's biggest tech names were born here, and many of them are still growing rapidly.

Trouble is, that growth is increasingly coming from overseas. Both Apple and Intel said in earnings reports this week that international sales are rising as a portion of total sales. Intel, in particular, now derives 79% of total revenue from sources outside North America.

The rising tide of overseas investment
Fortunately, rising international consumerism isn't the only way to play tech globally. Some countries are spending aggressively to create new innovators to compete with the best the U.S. has to offer.

Only 178 of more than 600 global companies doubled in price over the past three years. Of those, 146 were based in the United States. Yet the median performance of that group ranked ninth in total return, according to S&P Capital IQ:

Country

3-Year Median Return

Top Performer

R&D as a % of GDP (Latest)

Brazil 1,093.6% Brazilian Telecommunications Not reported
United Kingdom 343.1% ARM Holdings (Nasdaq: ARMH  ) 1.79%
Israel 254.2% Mellanox Technologies 4.68%
Argentina 225% Mercadolibre (Nasdaq: MELI  ) 0.51%
Germany 174% Aixtron SE 2.54%
Singapore 173.3% Kulicke & Soffa Industries (Nasdaq: KLIC  ) 2.61%
Japan 168.9% Internet Initiative Japan 3.44%
China 163.7% Spreadtrum Comms, (Nasdaq: SPRD  ) 1.49%
United States 159.1% Acme Packet (Nasdaq: APKT  ) 2.68%

Sources: S&P Capital IQ, National Science Foundation data.

The trouble with looking back
Please note that this analysis isn't perfectly representative. I went searching for the countries that produced the highest returns, and in the process set a floor in my screen. Only stocks that had at least doubled over the past three years were considered.

So when the table says the median three-year return for German tech was 174% -- a period during which shares of software supplier SAP rallied about 70% -- you know that you're getting only a portion of the techies that call Bavaria home. (One in this case, Aixtron.)

Yet the directional trends are still fascinating, especially when you consider the top regional spenders on research and development. Israel, ranked third in median performance, produced four multibaggers and tops the list with 4.68% of gross domestic product (GDP) spending going to R&D, according to data collected by the Organization for Economic Co-operation and Development (OECD) and the United Nations Educational, Scientific, and Cultural Organization (UNESCO). (The National Science Foundation aggregated and published the findings.)

Spending to win
Commitment may have also helped to fuel the gains. While China was spending less than 1.5% of GDP on research and development in 2007 -- the last year in which formal statistics were available -- that figure still represents a h