By David Sterman
NEW YORK (
) -- International expansion has been the top goal of hundreds of U.S. blue-chip stocks. Tapping foreign markets has been an easy way to keep sales and profits growing, usually with little risk.
Even as Greek voters have chosen to stay on the path of austerity (for now), rising bond yields in Italy and Spain are signaling even more pain to come for the Europe.
This coming earnings season is likely to be quite painful for many companies that have ventured abroad. Not only are many European economies in recession, but a number of emerging markets are feeling the pain as well. China, for example, has resorted to another round of stimulus to keep its economic deceleration from snowballing.
That's why it's now more important than ever for U.S. investors to pay attention to their stock holdings that have significant exposure to Europe.
Just Like the First Quarter?
Remarkably, companies with significant international exposure were often able to deliver solid results in the first quarter of the year. Trouble is, global business conditions have gotten even worse in the past 90 days. Even if these companies manage to come close to meeting second-quarter forecasts, they might sharply lower forward guidance.
This isn't to say all sectors will feel the same pain. Utility stocks and telecom service providers, on average, derive more than 95% of sales right here in the U.S. Financial stocks have only 15% exposure to foreign markets, and for regional banks, this figure is often close to zero.
Yet many other sectors are quite vulnerable to further sector weakness. Take consumer staple stocks such as
Procter & Gamble
Each one of these firms derives more than one-third of sales from foreign markets, and each company is still expected to boost sales in 2012 and 2013. Will that forecast remain in place once a sobering worldview is discussed when second-quarter results are released?
The materials sector also feels the pain, with average global exposure of around 45%. This helps explain why shares of
continued to trade at a sharp discount to levels seen a few years ago. I still expect Alcoa and other materials providers to move nicely higher over the next few years, but the coming quarter should provide little cheer.