|TheStreet.com, Summer, 2014. This article was written with Oliver Pursche, the Co-Portfolio Manager of the GMG Defensive Beta Fund. It was part of a series of articles developed under an agreement with thestreet.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week.|
I’ve had my eye — and my clients’ money — on four international stocks that have shown they can outdo their U.S.-based counterparts.
First, let’s take a step back. Diversification has proven itself repeatedly to be the strategy of choice for the long-term investor. However, that word means different things to different investors and portfolio managers.
What’s more important, one might ask — the country of domicile, the markets where total revenues come from, or the sector?
I would argue that if you’re balancing your portfolio by sector, then there are many companies where the country of domicile is moot — as long as it’s a stable Western nation — and that some similar international corporations are either comparably dependent on the same global regions or vary wildly in the sources of their international revenue.
In other words, that word — international — can trip up even an experienced investor.
On to My Choices
Now to my picks. My picks all have revenue that is arguably more internationally diverse than their U.S. counterparts (domestic being defined for the purpose of this argument as the U.S., and international as outside the U.S.).
Five out of the five companies have better yields than their U.S. counterparts, and three of the five have better three-year returns; two of the three-year laggards have better one-year returns.
All numbers are based on each company’s final results for their most recent fiscal year using 10-K form for U.S. companies and 20-F filed with the SEC for their foreign counterparts.
1. In the energy sector, France’s Total (TOT – Get Report) bests its U.S.-based counterpart — Chevron (CVX – Get Report) — by every measure. (For more on this, see “Trade Ideas: Total Is Today’s “Roof Leaker” Stock.”)
On Monday at 1 p.m., Total was trading at $65.12, up 0.65% for the day. Chevron was trading at $126.87, down 0.8% for the day.
Total boasts a yield of 4.6% to Chevron’s 3.2%, and Total’s year-to-date (15.04%), one-year (15.04%) and three-year returns (45.11%) dominate over Chevron’s returns of 8.82%, 8.17% and 36.45%, respectively. (The two companies are also joint-venture partners in several projects.)
According to SEC filings, as of the previous fiscal year, the companies had combined upstream/downstream total revenue in the following splits:
* Total: World $30.360 billion; US $1.611 billion; U.S. percentage: 5.31%
* Chevron: World $228.848 billion; U.S. $174.318; U.S. percentage: 76.2%
2. Also in the energy sector, Netherlands-based Royal Dutch Shell (RDS.A) beats ExxonMobil (XOM) in three of the four categories we looked at. Shell has a yield of 4.59% (vs. Exxon’s 2.67%), and its YTD returns (17.91% vs. Exxon’s 3.37%) and one-year returns (25.78% vs. Exxon’s 11.67%) also dominate. On three-year returns, Shell and Exxon are close, but Exxon does edge out its counterpart at 32.01% to 27.86%.
In terms of revenue, the companies do not report precisely the same, but you can get a rough idea from the following:
* Royal Dutch Shell (total revenue by geographical area): World: $451.235 billion; U.S. $72.552 billion; U.S. percentage 16.08%
* Exxon Mobile (sales & operating revenue): World $420.836; U.S. $152.820; U.S. percentage 36.31%
3. In consumer staples, I put Nestle (NSRGF) up against Hershey (HSY). The Swiss-based Nestle bests its U.S. counterpart Hershey in terms of yield (3.15% vs. Hershey’s 2.31%), YTD returns (7.45% vs. Hershey’s drop of 3.93%) and one-year returns (17.06% vs. Hershey’s 0.50%). However, regarding three-year returns, while Nestle shows a respectable 31.03%, it is well below the 69.25% from Hershey.
In terms of total revenue by region, the companies break down as follows:
* Nestle: Global 92.2 billion Swiss francs (about $101 billion); the Americas 40.0 billion Swiss francs (about $44 billion) (note that the U.S. is not broken out separately by Nestle); Americas percentage 43.38%
* Hershey: Global $7.146 billion, and North America $5.960 billion (which includes the U.S. and Canada); North America percentage 83.40%.
Hershey did note that sales outside the U.S. and Canada increased approximately 15.7% year-over-year.
4. In the information technology sector, I like to compare SAP (SAP) to Oracle (ORCL). The German SAP’s yield (1.69% vs. Oracle’s 1.19%) and three-year returns (41.53% vs. Oracle’s 29.34%) beat those of its U.S. counterpart. However, in all fairness, Oracle can boast better YTD returns (-5.71% for SAP vs. 6.38% for Oracle) as well as one-year returns (11.09% for SAP vs. 26.19% for Oracle).
In terms of total revenues by region the number are as follows:
* SAP: Global 16.814 billion euros ($22.6 billion); U.S. 4.661 billion euros ($6.2 billion); U.S. percentage 27.72%.
* Oracle: Global $32.275 billion; the Americas $20.323 billion (Note that the U.S. is not broken out separately); Americas percentage 62.97%.
Although they are both major players in all sectors of “big data,” in terms of worldwide enterprise resource planning software market share, SAP’s 25% is nearly double that of Oracle’s 13%. Certainly it can be shown that SAP, like all the above mentioned international companies, has worldwide sales more diverse than its U.S. competitor.
For these as well as the other reasons mentioned, I would always advise that, where appropriate, you consider internationally based companies that are comparable to their U.S.-counterparts to see if one of the other might give your portfolio an edge up on pure domestic plays.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.