Geopolitical events can have far-reaching effects. Even if they don't have a direct impact on a business, they can result in higher commodity prices and disrupt supply chains. The ripple effect is what can make globalization both a blessing and a curse for businesses.
The good news for investors is that there are ways to hedge against these factors and minimize risk, and that includes focusing on large, U.S.-based businesses that aren't overly dependent on international markets. Two stocks that fit this criterion include UnitedHealth Group (UNH 1.10%) and Walmart (WMT 0.99%).
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1. UnitedHealth
Minnesota-based healthcare company UnitedHealth serves millions of Americans, and that includes providing roughly one in five seniors with benefits through its Medicare plans. The bulk of the company's revenue comes from premiums, which at $226.2 billion in 2021 accounted for 79% of the top line with other activities -- such as pharmaceuticals sold through its pharmacy business -- making up the remainder.
Although UnitedHealth technically provides benefits globally and some of its businesses do operate internationally, the company's exposure is limited. Of the more than 50.6 million people its health insurance business served in 2021, 45.1 million (89%) were considered domestic with just 5.5 million falling into the "global" category.
UnitedHealth's business has proven to be resilient even amid the pandemic. Its net earnings of $17.3 billion in 2021 rose 12% from the previous year and were 25% higher than it reported in 2019. For the current year, the company continues to expect profits to rise to as much as $19.7 billion, which would represent a year-over-year increase of more than 14%. A lot will undoubtedly depend on the impact of COVID-19 costs; last year, the company's medical care ratio (which measures medical costs as a percentage of premium revenues) was 82.6%, up from 79.1% a year earlier.
Historically, the company has reported small-but-stable profit margins of at least 5% of sales, making it a relatively safe stock to own. But that doesn't mean it hasn't made people rich. Over the past decade, the healthcare stock has generated total returns (including dividends) of nearly 900% -- three times the 291% gains that the S&P 500 has produced during the same period.
2. Walmart
Big-box retailer Walmart has stores in two-dozen countries. However, given its size and its heavy focus on the U.S., it is still a safe stock to own even if you are worried about conflicts going on in other parts of the world.
Of the $567.8 billion in consolidated net sales that Walmart posted for its fiscal year ended Jan. 31, $101 billion (or 18%) came from its international operations. So while there is still plenty of room for Walmart to expand globally, the U.S. business remains key to its operations.
And the U.S. business is growing too. This past year, Walmart U.S. generated net sales growth of 6.3%, and Sam's Club revenue jumped by 15.1%. Revenue from Walmart International, however, declined by 16.8% due to divestitures as it transitions to higher-growth markets.
Walmart's 10-year total returns are at just under 200%, underperforming the overall market. But given its rock-solid stability, investors are trading some returns for safety with Walmart, which is what makes the stock an attractive option today. Given its size and strong bargaining power with suppliers, Walmart could be in a much better position than other businesses to face geopolitical headwinds.
Last year its sales rose by just 2.4% despite all the supply-chain problems which the retail world faced. And with its cost of sales rising by just 2.1%, Walmart was able to increase its operating profit by 15.1% to $25.9 billion.
Walmart isn't a rapidly growing company anymore, but it still can make for a solid buy-and-forget investment that won't keep you up at night.
