In a dramatic reversal from last year, blue chip stocks with high exposures to foreign markets are market leaders, based on more stable economic growth abroad and a falling U.S. dollar, per a report from Goldman Sachs summarized by Business Insider. Goldman's basket of stocks with a high proportion of international sales is their top performing investment theme so far in 2019.
The median stock in the basket derives 70% of sales from outside the U.S., compared to 29% for the median S&P 500 stock. Among the stocks in the basket are these eight, with their year-to-date gains through the close on Nov. 14: Lam Research Corp. (LRCX), 102%, KLA Corp. (KLAC), 97%, Aptiv PLC (APTV), 50%, Nvidia Corp. (NVDA), 57%, United Technologies Corp. (UTX), 39%, Qualcomm Inc. (QCOM), 59%, Alphabet Inc. (GOOGL), 25%, and Microchip Technology Inc. (MCHP), 30%. The S&P 500 Index is up by 24%.
- U.S. stocks with high international sales are market leaders in 2019.
- A falling dollar and stable growth abroad are key drivers.
- This is a turnaround from 2018, when domestic-facing stocks led.
Significance for Investors
Last year, domestic-oriented stocks, propelled by strong U.S. consumer spending and largely insulated from trade conflicts, were top performers. The eight internationally-facing stocks listed above represent a variety of industries. Nvidia and Microchip Technology are manufacturers of advanced semiconductors. Lam Research and KLA are suppliers of equipment used by semiconductor makers. Aptiv, formerly known as Delphi Automotive, is a 1999 spinoff from General Motors Co. (GM) that manufactures automotive components.
Alphabet is the parent of Google, the leading internet search engine worldwide, as well as YouTube, the leading video sharing service. Both are also among the leading destinations for online advertising. Among its other ventures, such as the development of self-driving cars, Alphabet has a new initiative in online banking, with Citigroup Inc. (C) as its principal partner.
United Technologies is a major industrial products conglomerate whose best-known product lines include Otis elevators, Pratt & Whitney jet engines, and Carrier air conditioning and refrigeration systems. Shareholders have approved a merger with Raytheon Co. (RTN), a $135 billion combination that would produce the world's second-largest defense contractor if approved by the U.S. federal regulators.
The proposed deal would spin off Otis and Carrier, while merging United Technologies' aerospace business with Raytheon in a new company called Raytheon Technologies. Robert Spingarn, an analyst with Credit Suisse, estimates that the net impact to United Technologies' shareholders would raise the value of a current share to between $164 and $180, per Barron's, or 10.7% to 21.5% above the Nov. 14 close.
Chipmaker Qualcomm also develops advanced digital communication technologies. It beat profit estimates for Q4 of fiscal year 2019, which ended on Sept. 29, and its guidance for Q1 of FY 2020 indicates high confidence that it will exceed expectations once again.
“We exit the fiscal year having successfully executed on our strategic priorities: helping to drive the commercialization of 5G globally, completing a number of important anchor license agreements and executing well across our product road map. Our technology and inventions leave us extremely well positioned as 5G accelerates in 2020," Qualcomm stated in its earnings release.
If the trade picture darkens again, if growth outside the U.S. slows down, or if the U.S dollar rebounds in value, globally-facing U.S. stocks may become laggards once again.