First, let's take a step back. Diversification has proven itself repeatedly to be the strategy of choice for the long-term investor. However, that word means different things to different investors and portfolio managers.
What's more important, one might ask -- the country of domicile, the markets where total revenues come from, or the sector?
I would argue that if you're balancing your portfolio by sector, then there are many companies where the country of domicile is moot -- as long as it's a stable Western nation -- and that some similar international corporations are either comparably dependent on the same global regions or vary wildly in the sources of their international revenue.
In other words, that word -- international -- can trip up even an experienced investor.
On to My Choices
Now to my picks. My picks all have revenue that is arguably more internationally diverse than their U.S. counterparts (domestic being defined for the purpose of this argument as the U.S., and international as outside the U.S.).
Five out of the five companies have better yields than their U.S. counterparts, and three of the five have better three-year returns; two of the three-year laggards have better one-year returns.
All numbers are based on each company's final results for their most recent fiscal year using 10-K form for U.S. companies and 20-F filed with the SEC for their foreign counterparts.
1. In the energy sector, France's Total (TOT) bests its U.S.-based counterpart -- Chevron (CVX) -- by every measure. (For more on this, see "Trade Ideas: Total Is Today's "Roof Leaker" Stock.")
On Monday at 1 p.m., Total was trading at $65.12, up 0.65% for the day. Chevron was trading at $126.87, down 0.8% for the day.
Total boasts a yield of 4.6% to Chevron's 3.2%, and Total's year-to-date (15.04%), one-year (15.04%) and three-year returns (45.11%) dominate over Chevron's returns of 8.82%, 8.17% and 36.45%, respectively. (The two companies are also joint-venture partners in several projects.)
According to SEC filings, as of the previous fiscal year, the companies had combined upstream/downstream total revenue in the following splits:
- Total: World $30.360 billion; US $1.611 billion; U.S. percentage: 5.31%
- Chevron: World $228.848 billion; U.S. $174.318; U.S. percentage: 76.2%
2. Also in the energy sector, Netherlands-based Royal Dutch Shell (RDS.A) beats ExxonMobil (XOM) in three of the four categories we looked at. Shell has a yield of 4.59% (vs. Exxon's 2.67%), and its YTD returns (17.91% vs. Exxon's 3.37%) and one-year returns (25.78% vs. Exxon's 11.67%) also dominate. On three-year returns, Shell and Exxon are close, but Exxon does edge out its counterpart at 32.01% to 27.86%.
In terms of revenue, the companies do not report precisely the same, but you can get a rough idea from the following:
- Royal Dutch Shell (total revenue by geographical area): World: $451.235 billion; U.S. $72.552 billion; U.S. percentage 16.08%
- Exxon Mobile (sales & operating revenue): World $420.836; U.S. $152.820; U.S. percentage 36.31%
3. In consumer staples, I put Nestle (NSRGF) up against Hershey (HSY). The Swiss-based Nestle bests its U.S. counterpart Hershey in terms of yield (3.15% vs. Hershey's 2.31%), YTD returns (7.45% vs. Hershey's drop of 3.93%) and one-year returns (17.06% vs. Hershey's 0.50%). However, regarding three-year returns, while Nestle shows a respectable 31.03%, it is well below the 69.25% from Hershey.
In terms of total revenue by region, the companies break down as follows:
- Nestle: Global 92.2 billion Swiss francs (about $101 billion); the Americas 40.0 billion Swiss francs (about $44 billion) (note that the U.S. is not broken out separately by Nestle); Americas percentage 43.38%
- Hershey: Global $7.146 billion, and North America $5.960 billion (which includes the U.S. and Canada); North America percentage 83.40%.
Hershey did note that sales outside the U.S. and Canada increased approximately 15.7% year-over-year.
4. In the information technology sector, I like to compare SAP (SAP) to Oracle (ORCL). The German SAP's yield (1.69% vs. Oracle's 1.19%) and three-year returns (41.53% vs. Oracle's 29.34%) beat those of its U.S. counterpart. However, in all fairness, Oracle can boast better YTD returns (-5.71% for SAP vs. 6.38% for Oracle) as well as one-year returns (11.09% for SAP vs. 26.19% for Oracle).
In terms of total revenues by region the number are as follows:
- SAP: Global 16.814 billion euros ($22.6 billion); U.S. 4.661 billion euros ($6.2 billion); U.S. percentage 27.72%.
- Oracle: Global $32.275 billion; the Americas $20.323 billion (Note that the U.S. is not broken out separately); Americas percentage 62.97%.
Although they are both major players in all sectors of "big data," in terms of worldwide enterprise resource planning software market share, SAP's 25% is nearly double that of Oracle's 13%. Certainly it can be shown that SAP, like all the above mentioned international companies, has worldwide sales more diverse than its U.S. competitor.
For these as well as the other reasons mentioned, I would always advise that, where appropriate, you consider internationally based companies that are comparable to their U.S.-counterparts to see if one of the other might give your portfolio an edge up on pure domestic plays.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates CHEVRON CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate CHEVRON CORP (CVX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CVX's debt-to-equity ratio is very low at 0.15 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.02, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has increased to $8,417.00 million or 47.30% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 18.80%.
- CVX, with its decline in revenue, slightly underperformed the industry average of 1.5%. Since the same quarter one year prior, revenues slightly dropped by 6.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- In its most recent trading session, CVX has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: CVX Ratings Report