| NEW YORK, July 11
NEW YORK, July 11 Stock market investors who
embraced a "buy America" strategy have been well rewarded this
year - particularly if they have targeted U.S. companies with a
vast majority of their sales at home.
Rising U.S. home prices, the boom in U.S. oil and gas
production, and a better jobs picture, have all made the outlook
for the U.S. economy look rosier than many other places,
particularly in comparison with weakness in Europe, China and
other major emerging markets. Even political gridlock in
Washington has been less of a threat as the fiscal picture has
It all means that many companies selling mainly to U.S.
consumers and businesses look like good bets for further gains,
fund managers said.
But American defensive sectors such as utilities and
telecommunications providers - which led the rally in the first
half of the year - may not be as attractive as interest rates
rise. Consumer discretionary companies and financials could
profit the most, as they may get an earnings boost from any
pickup in economic growth.
"It's not that the U.S. is in some great economic push, but
it's more that we're the least ugly option out there," said
David James, a portfolio manager of the $2.3 billion James
Balanced Golden Rainbow fund. James, who runs an
all-world fund, has been increasing his stake in U.S.-focused
companies throughout this year, he said.
Here are ways stock investors can "Buy American":
The kinds of companies expected to be winners in the second
half of the year are not the same ones that have propelled the
indexes so far in 2013.
Defensive stocks are up 17 percent year to date, while
cyclicals - companies such as homebuilders and high-end
retailers that are very reliant on economic growth - are up 12
percent, according to Goldman Sachs research. But these
defensive dividend-payers, mostly utilities and telecom stocks,
may suffer later as high interest rates raise their borrowing
costs and provide competition for income investors, Goldman
Goldman's top picks among large-caps include domestic names
such as insurer Allstate, which Goldman analysts expect
to jump by 24 percent over the next 12 months as its earnings
increase, and hotel operator Wyndham Worldwide Corp.,
which Goldman says has a 38 percent stock price upside as it
revamps its timeshare business and increases stock buybacks.
Overall, Goldman expects the S&P 500 to gain another 8 percent
by the end of the year.
Chris Brown, the chief investment officer at Boston-based
Pax World Funds responsible for $2.8 billion in
assets, has been selling international companies like mining
giant Rio Tinto and buying U.S.-based asset management
companies like BlackRock and automakers like Ford Motor
Ford, which is the No. 2 U.S. automaker after General Motors
and draws the bulk of its earnings from the United
States, saw its North American sales rise 11 percent in the
first quarter, compared with a 6 percent gain for the overall
industry. U.S. car sales have rebounded, but Brown also likes
Ford as an alternative way to play the U.S. housing recovery
because of its highly profitable truck business.
"More construction means more pickup trucks, and the
number-one-selling full-size truck is the Ford F-150," Brown
Michael Sansoterra, a portfolio manager of the $260 million
RidgeWorth Large Cap Growth fund, recently opted to
add shares of apparel brand Under Armour to his fund
rather than Nike.
"We could have bought Nike, but we wanted a pure U.S. play.
It's not that Nike's bad, but Under Armour doesn't have that
international exposure," he said.
Under Armour generates about 95 percent of its sales
domestically, Sansoterra said, compared with a 40 percent
domestic focus for Nike.
Sansoterra has also been adding to his position in Fortune
Brands Home & Security even though the stock is up
nearly 35 percent this year. The rebound in housing will lead to
both new construction and an uptick in home renovation, he said,
giving the company the potential to double its earnings in the
next two to three years. The United States accounts for 83
percent of Fortune's revenue, followed by Canada at 11 percent,
according to Thomson Reuters data.
SMALLER AND CLOSER TO HOME
Small and mid-cap companies tend to be more domestically
focused and have attractive valuations (and better growth
prospects) than larger companies - though they are more volatile
and could fall faster if the U.S. economy were to slow.
Despite a 19.9 percent gain in the benchmark Russell 2000
index for the year to date, small and mid-cap companies trade at
an average price-to-book ratio of 1.9, according to StarMine,
while the S&P 500 - itself up 15.9 percent for the year - trades
at a pricier ratio of 2.3.
There is good value in mid-cap financials like Raymond James
Financial, said Dan Veru, chief investment officer at
Fort Lee, New Jersey-based Palisade Capital Management,
responsible for $4.2 billion in assets. The company, which makes
90 percent of its revenue from the United States, is up 15
percent in 2013, and Veru expects more gains as the improving
economy boosts its wealth management revenue.
Karl Brewer, portfolio manager of the $504 million William
Blair Small Cap Growth fund, is focused on companies that will
benefit from domestic consumer spending. He has been adding to
his position in regional theme park operator Six Flags
Entertainment Corp, which has gained 20 percent so far
The company has reduced discounts and revamped its staffing
and dining operations at a time when theme parks are expected to
reach record revenues, he said. "These parks are an affordable,
local option for families during the summer," Brewer said.
And, of course, close to home.