Domestic US stocks are a better buy

For the rest of 2012, purely American companies are better positioned to deliver than multinationals.

By Jim J. Jubak Jul 18, 2012 5:19PM
Image: US currency (© Steve Allen/Brand X Pictures/Jupiterimages)Looking at the second-quarter earnings reports out so far from the likes of Coca-Cola (KO) and Johnson & Johnson (JNJ), and putting those together with Wednesday's very positive report on the U.S. housing sector, I can't help but think that I'd like to own more exposure to the U.S. domestic economy and less exposure to Europe.

Not just because European revenue growth looks just about non-existent this quarter, which it does, but also because the strong dollar is killing company earnings when revenue in currencies such as the euro is translated back into dollars.

For example, Coca-Cola reported a decline in net income in the second quarter -- to $2.79 billion from $2.80 billion a year earlier -- as revenue grew by a meager 3%. According to the company, the strong dollar knocked four percentage points off Coke's revenue growth during the quarter. And in the third quarter, Coke said, the strong dollar would present the company with an 8% to 9% revenue headwind.

The story at Johnson & Johnson was pretty much the same. Earnings in the quarter fell 49.3% from the second quarter of 2011. Most of that drop was due to things like the costs of closing the acquisition of medical-device maker Synthes and spending $600 million to settle a lawsuit over allegations of bribery and improper marketing of several drugs. But Johnson & Johnson also saw revenue decline by 0.7% from a year earlier on the effect of a stronger ollar. For all of 2012, the company cut its earnings guidance to $5 to $5.07 a share and again cited the effects of a stronger U.S. currency.

Contrast that drag on earnings to the lack of a currency drag and the improving domestic prospects of the U.S. homebuilders as revealed in Wednesday morning’s report of a 6.9% increase in May housing starts.

The conclusion I'd draw is that for this earnings season and, indeed, if we believe company guidance, for the rest of 2012 purely domestic U.S. companies are better positioned to deliver revenue and earnings growth than U.S. multinationals such as Coke, PepsiCo (PEP), McDonald's (MCD) and IBM (IBM).

A list of domestic U.S. companies to look at for this quarter and the rest of 2012 would include -- 
besides U.S. home builders such as Lennar (LEN) and Toll Brothers (TOL) -- Lowe's (LOW), Lumber Liquidators (LL), Dollar General (DG), and CBRL Group (CBRL), known to highway travelers as Cracker Barrel Old Country Stores. Contrast Coke, which gets 56% of its sales from outside North America, with Dollar General, which has 10,000 stores in 39 states.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned.  The fund did own shares of McDonald's as of the end of March. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

14Comments
Jul 19, 2012 8:28AM
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Sick of dating spam sites in the comment section of nearly all articles.  MSN must be getting paid to allow these.
Jul 19, 2012 12:52AM
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I wouldn't listen to a thing this guy says.  Look at his own mutual fund. It loses money.  I saw him tell people to buy a stock earlier this year and then turn around 3 months later and told them to get out at a loss when a week or two later the stock would have made them money.  This is what is wrong with the stock market.  Too many trying to make a fast buck and too many so-called experts that people listen to.
Jul 19, 2012 7:19AM
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Now he says "Buy American" ???? Where the he11 have you been for the last 30 years???????? If we'd all been buying American all along, we wouldn't be in the clusterphuck we're in now!!!!!!
Jul 18, 2012 11:13PM
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Even if it's made elsewhere, I'll take the profits staying here. Buy as American as you can.
Jul 19, 2012 9:24AM
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We have a sleeper in America that has been given an impoverished name: This is the US State of Mississippi.  Once thought to be the poorest State in the Nation, Mississippi is the "global" leader in catfish farming.  They are also second in the Nation of the cotton crop.  They are well diversified in many of the farming sectors and a paradise for the corn belt debacle.  Mississippi can save Thanksgiving and Christmas.  We should put more pride in Mississippi as a safe haven for the Grand Ol' USA.  Mississippi is the "Gold Mine" State now and needs further investigation and investment.  The Mississippi Delta is some of the richest soil sediment in the world and packed with marine life.  God Bless America, and thank God for the Mississippi citizens keeping America Strong.  Invest in Mississippi and it's people. 

Jul 19, 2012 12:11PM
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Do some research...only invest in US companies that don't outsource jobs overseas. 

Jul 19, 2012 11:27AM
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Wise words.  Europe is beginning their lost decade and maybe longer.  It's too bad, I'm sure there are a lot of smart hard working people there who will be stuck in the money angst for a large part of their life.

 

Good old American electric utilites.  Healthy dividends and you can sleep at night.  (I'm over 55 and so have conservatized my portfolio in preparation for retirement.)

 

Jul 19, 2012 7:40AM
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One step further, Jim. Invest in your neighborhood. Help someone get a business into one of those vacant storefronts and use your wisdom to teach them how to sustain and succeed. We part ways on stocks-- there isn't one stock out there that isn't hurting America and Americans.
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David Pedjoe (below) should be President of the United States of America.  The fool we have in there now thinks we suck and tells the world about it, to boot. 

 

David gave a very clear message to the world that the State of Mississippi is a well rounded state that one can do business in.   We need to let President Obama know we have better people in this country than what he thinks.

Jul 19, 2012 12:38PM
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As always, right on Mr. Jubak. I've been doing this for the past 3 years. 
Jul 19, 2012 12:09PM
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My God -- finally!  An article that is not titled "Should you...?"
Jul 19, 2012 9:56AM
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CA$H is King, F eveything else.....
Jul 18, 2012 8:48PM
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Yes, American companies that have their offices here but have everything they sell "Made in China." The American company owner gets all the profits while the Chinese worker gets the same thing the American worker got when things were "Made in U.S.A." The shaft. Granted, it's a much longer shaft.

I don't know which is worse, these blood-suckers sucking the life's blood out to the locals, or all those sucking noises coming out of the foreigners. Too bad there's not some H.I.V. disease that comes with all these fake profits being reported by all these fake U.S. companies.  

Jul 19, 2012 1:10PM
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Why should we buy US stocks? They certainly didn't take care of the 99% Americans, the SAME PEOPLE that MADE THEM SUCCESSFUL in the FIRST PLACE!
Wake up, Jubak! It's time for the corrupt Republican corporate MONARCHY to STOP STEALING our American way of life & MAKING SLAVES OF US! It's time to give back, NOT TO TAKE MORE! We, the 99% American People ARE BROKE because of CAPITALISTIC GREED! So, tell us why YOU THINK we SHOULD GIVE BACK TO THEM?...SO THEY CAN STEAL MORE FROM US!!!

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