Overseas Crises Benefit the U.S.
There's no shortage of drama when dealing with the PIIGS countries: Portugal, Ireland, Italy, Greece and Spain. The globe has already seen two of these countries bailed out and more could be on the way in 2011.
"The big negative is the sovereign debt and euro-zone issue, which will continue to be the thorn in the side of the global recovery for several years," Cantor Fitzgerald's Pado says, noting that the austerity plans are targeting 2014 and 2015.
It may be puzzling, then, to find that Pado is still bullish on the U.S. But the explanation he provides is remarkably simple."Our top trading partners are Canada, China and Mexico. You don't have any of the so-called PIIGS on the top 10 or 15 list," he says. "They have no economic impact in terms of our exporting. We don't import a heck of a lot either. The direct impact is overblown. The residual impact is far less than most people are concerned about." Instead, market strategists are keeping a watchful eye on inflation overseas, which can directly benefit the U.S. As the chart above shows, commodities like cotton and grain have skyrocketed in 2010, which can lead to price inflation for countries abroad that are forced to import from the U.S. Auxier takes the traditional route in finding U.S. companies that are in emerging markets but aren't trading at a premium, such as Procter & Gamble (PG) and Pepsi (PEP). Meanwhile, Dearborn Partners' Nolte expects that economically sensitive companies like Deere (DE) and Caterpillar (CAT) will be top picks based on the continued rise in corn prices. "The next bubble is rumored to be in farms," he says. "But when farmers get money, they put it back into the farms. They'll be buying and upgrading equipment. Plus, these companies do a fair amount of business overseas. As long as there is a steady growing demand for grains, these companies will do well." With energy prices expected to stay firm, Nolte says investments in Exxon Mobil (XOM) and Chevron (CVX) "make sense." He also names Freeport-McMoRan (FCX) as a good metals pick. On the other hand, Nolte says consumer stocks may actually be hurt by commodity prices because of input costs. For example, he says Kellogg will struggle a bit. "They may be able to raise prices, but the cost of input will go up," he says.