Many investors understand the merits of geographical diversification. As the saying goes, you don’t want to put all your eggs in one basket, and spreading your equity investments among stocks across the globe is a great way to diversify your portfolio. Since global economies are connected yet separate at the same time, it used to be that if one global market was doing poorly, chances were another was doing well.
As a result of globalization, that concept is now slightly outdated. In fact, there are many U.S.-based companies who do a majority of their business outside the United States. It’s almost been a consequence borne out of necessity, since the United States is an extremely mature economy whose days of rapid economic growth are likely behind it. Nevertheless, there are a few blue-chip stocks you undoubtedly know well, which happen to be profiting handsomely from their international operations.
Hit the BRICs
The BRIC nations are Brazil, Russia, India, and China, and represent the world’s prominent emerging economies. These are under-developed countries with large populations of people entering the middle class. In turn, the spending power of this new, booming middle class is likely to result in enhanced economic growth for both these specific countries, and the world at large. Corporate America was quick to pounce on this potential and many U.S. blue-chips set up shop in these nations.
Caterpillar Inc. (NYSE:CAT) is a perfect fit for rapidly developing nations, as its namesake earth-moving machinery is all but necessary to a developing economy. To emphasize, Caterpillar Inc. (NYSE:CAT) derived 64% of its revenue from outside North America last year.
Fellow Dow Industrial Average components Intel Corporation (NASDAQ:INTC) and McDonald’s Corporation (NYSE:MCD) also capitalized on emerging market opportunities. As of its last annual report, Intel derived only 21% of its revenue from the Americas, while 55% of its sales came from its Asia-Pacific segment alone.
McDonald’s (NYSE:MCD) is also heavily reliant on international operations, as evidenced by the fact that it derives roughly two thirds of its revenues from outside the United States. Last year, the company reported consolidated operating income growth of 4% in constant currencies, helped in large part by its APMEA segment, which consists of Asia-Pacific, the Middle East, and Africa. Operating income growth in the APMEA segment, in constant currencies, was 3% year-over-year. This was more pronounced than U.S. operating income growth of 2% in constant currencies.
The future is bright
Each of these companies has done an admirable job extending their businesses to profit from international economic development, and as a result, future growth is expected to continue. Caterpillar’s international operations allowed it to post record sales and profits for 2012, and managements expects 2013 sales growth of more than 3% at the high end of its forecast.
Intel Corporation (NASDAQ:INTC) generated more than $53 billion in full-year 2012 revenue, along with $11 billion in profits last year. Intel expects 2013 revenue growth to be in the low to mid-single digits, due largely in part to the fact that 79% of its business comes from outside the Americas.
McDonald’s has put in huge efforts in expanding into the BRIC nations, and its globally recognized brand will likely mean success in these endeavors. McDonald’s is executing on its plan to open 225-250 new restaurants every year in China until it reaches its stated goal of 2,000 restaurants there by the end of 2013. Moreover, the company has now targeted growth through Russia as well. McDonald’s has 357 restaurants in more than 85 Russian cities, with plans to open at least 150 self-operated restaurants in Russia over the next three years.
Winners in the U.S. and abroad
You may not have realized this, but the truth is that if you’re invested in American large-cap multinationals such as Caterpillar Inc. (NYSE:CAT), Intel Corporation (NASDAQ:INTC), and McDonald’s, you’re already diversified geographically. With these stocks, there’s little need to invest in companies you’ve barely heard of whose financial reporting may be questionable. These stocks derive more than half of their business from outside the United States. In a sense, they’re American companies in name only.
These stocks are very profitable and extremely well-managed. They have spread their businesses into nearly every corner of the world, ensuring that their days of growth are far from over. More specifically, these companies do a great deal of business in the BRIC nations, which are poised to fuel the global growth engine in the near future. As this trend continues, you can fully expect higher profits and dividends from these stocks for years to come.
The article A Sneaky Way to Gain International Diversification originally appeared on Fool.com and is written by Robert Ciura.
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