Emerging-markets investing at home
Growth in the emerging markets has led many American investors to focus on identifying foreign companies positioned to…
Growth in the emerging markets has led many American investors to focus on identifying foreign companies positioned to capitalize on that trend. What we tend to forget, however, is that people in other countries are buying American products and services, and many U.S. companies are capitalizing on growth overseas. In fact, there are countless U.S. businesses that are the best in the world at what they do and have the global success to prove it. Here are some whose foreign strength might surprise American investors:
• Yum Brands Inc. (YUM) operates more restaurants — some 37,000 in more than 110 countries and territories — than anyone else. Four of its brands — KFC, Pizza Hut, Taco Bell and Long John Silver’s — are the global leaders in their categories. Outside the U.S., Yum opened 1,467 restaurants in 2009. Forty percent of its profits come from China alone.
• Donaldson Co. (DCI) is a leading worldwide provider of filters and filtration systems. Its filters are used in everything from gas turbines to disk drives in notebook computers. Donaldson’s proprietary filtration technology tends to be superior to and smaller than its competitors’, giving the company an advantage around the world. Fifty-eight percent of the company’s sales are global.
• Idex Corp. (IEX) offers diversified engineered products and creates custom solutions for high-growth niche markets. Its largest product line supplies high-tech pumps that can handle a variety of substances, including pharmaceuticals, while its specialty pumps can dispense tiny amounts of material for the biotech field. Markets include industrial-infrastructure applications, life science and medical technologies, architectural paints and coatings, and industrial and municipal fire and rescue. Its rescue division includes the Jaws of Life brand, which is in high demand, especially in developing markets. Nearly 50% of Idex’s revenue is global.
• Cognex Corp. (CGNX) is the world’s leading provider of machine vision systems, vision software, vision sensors, and surface inspection systems used in manufacturing automation. Cognex is also a leader in industrial ID readers. Cognex helps companies improve product quality, eliminate production errors and lower manufacturing costs. Typical applications for machine vision include quality control, monitoring production lines, guiding assembly robots, and tracking, sorting and identifying parts. Cognex serves an international customer base; 66% of its revenue comes from outside the United States.
• John Wiley & Sons Inc. (JW-A) is a worldwide publisher specializing in scientific, medical, scholarly and technical journals, as well as books, encyclopedias and college textbooks. Wiley has healthy digital and print profit margins. Its margin on electronic publishing is actually higher than on traditional printing because shipping, distribution, inventory and return expenses are virtually eliminated. Foreign sales account for 50% of Wiley’s revenue.
• Xilinx Inc.(XLNX) is the world’s largest producer of “off-the-shelf” programmable logic devices known as field programmable gate arrays. The company controls 52% of the global market for FPGAs, which are more flexible and cheaper than traditional microchips and which run a single application; 66% of its orders come from customers abroad. Xilinx’s FPGAs are used in a multitude of technologically advanced devices ranging from telecom equipment to MRI machines, and as miniaturization continues to advance, the adoption of FPGAs will increase and bolster the company’s competitive position.
• Joy Global Inc. (JOY) is an international leader in mining solutions, with 49% of its sales outside the U.S. It manufactures and markets original equipment, and aftermarket parts and services, that are used extensively for the mining of copper, iron ore, coal, gold and other metals and minerals in Russia, Australia, Canada, Chile and South Africa. As emerging markets industrialize and commodities use grows, Joy is in a great position to capitalize on global demand.
From just these examples, it’s clear that investors can invest in U.S. stocks and still benefit from exposure overseas. Advantages to investing here include access to management and time-tested accounting and legal standards. Buying sound American companies with substantial overseas exposure is a good way to invest in foreign growth without leaving home.
John Fox, a chartered financial analyst, is director of research at Fenimore Asset Management. The opinions expressed are his own; his firm or clients may own or trade securities discussed above.
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