U.S. Stocks: Why America Is Recovering From The Debt Bust Faster Than Europe

By Kapitall | January 24, 2012 AAA


Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA

Since the financial crisis of 2008, many countries have taken on near-paralyzing levels of debt. Five years later, data shows that some debt-burdened nations are recovering much better than others. America is one of them.

The Economist reports "America has begun to pare its debt burden, although the drop is small compared with the build-up in 2000-08. But many European countries are more, not less, in hock than they were in 2008. There the hangover could last another decade or more."

Public vs. Private Debt
So what's made the difference in recovery rates? According to The Economist, it's private debt.

Countries carry a mix of public and private debt. In America, the private debt levels are shrinking fast enough to practically cancel out the growing public debt.

"America's ratio of household debt to income is down by 15 percentage points from its peak in 2008, after rising by over 30 percentage points in the eight preceding years... [McKinsey Global Institute] think the household-debt hangover could end by mid-2013."

Let's be Honest
Unfortunately, private debt isn't falling because Americans have become more financially conscious: The greatest contributor to falling debt levels is from defaults on mortgages.

The numbers are quite astounding. "Some two-thirds of America's $600 billion decline in household debt is due to defaults. With another $250 billion of mortgages in the process of foreclosure, further reduction is likely."

Compare this to Europe, which "have seen smaller drops in house prices, lower mortgage costs thanks to variable interest-rate mortgages, and gentler treatment from banks." This is nicer for the citizens, but private debt levels will remain high.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below.

Business Section: Investing Ideas
Looking for ways to give your portfolio an exposure to the American economy?

To help you explore the idea, we started with a universe of the 200 largest S&P 500 companies by market cap, and identified a list of 8 names that have seen significant institutional buying during the current quarter.

Big money managers have extensive resources to analyze investing ideas. So if they're buying a certain stock, it's worth paying close attention.

Do you agree with the bullish sentiment surrounding these American Giants? Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

1. Simon Property Group Inc. (NYSE: SPG): Engages in investment, ownership, and management of properties. Market cap at $38.69B. Net institutional purchases in the current quarter at 10.5M shares, which represents about 3.68% of the company's float of 285.68M shares.

2. Express Scripts Inc. (Nasdaq: ESRX): Provides a range of pharmacy benefit management (PBM) services in North America. Market cap at $25.25B. Net institutional purchases in the current quarter at 43.4M shares, which represents about 8.99% of the company's float of 482.82M shares.

3. Mosaic Co. (NYSE: MOS): Engages in the production and marketing of concentrated phosphate- and potash-based crop nutrients for the agriculture industry worldwide. Market cap at $23.40B. Net institutional purchases in the current quarter at 20.6M shares, which represents about 4.85% of the company's float of 424.90M shares.

4. Public Storage (NYSE: PSA): Operates as a real estate investment trust (REIT). Market cap at $23.24B. Net institutional purchases in the current quarter at 5.3M shares, which represents about 3.73% of the company's float of 142.09M shares.

5. Capital One Financial Corp. (NYSE: COF): Operates as the bank holding company for the Capital One Bank (USA), National Association and Capital One, National Association, which provide various financial products and services in the United States, Canada, and the United Kingdom. Market cap at $21.16B. Net institutional purchases in the current quarter at 34.0M shares, which represents about 7.53% of the company's float of 451.82M shares.

6. Williams Companies, Inc. (NYSE: WMB): Engages in finding, producing, gathering, processing, and transporting natural gas primarily in the United States. Market cap at $17.0B. Net institutional purchases in the current quarter at 35.0M shares, which represents about 5.96% of the company's float of 587.29M shares.

7. HCP, Inc. (NYSE: HCP) An independent hybrid real estate investment trust. Market cap at $16.69B. Net institutional purchases in the current quarter at 24.3M shares, which represents about 6.% of the company's float of 405.23M shares.

8. Ventas, Inc. (NYSE: VTR): Engages in investment, management, financing, and leasing of properties in the healthcare industry. Market cap at $16.30B. Net institutional purchases in the current quarter at 9.1M shares, which represents about 3.18% of the company's float of 286.10M shares.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Disclosure: Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Institutional data soured from Fidelity.

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