The economic problem in Europe is causing investors enough fear to selloff substantially. The $100 billion Spanish bailout did little to restore confidence, and it has become clear that if the European Union does not work to establish policies and serious solutions to tackle their fiscal uncertainty and lack of growth, international markets will continue to suffer. Despite this, the stock market is not necessarily a bad place to be.
Europe is becoming a perennial problem but it can be avoided. Investing in American companies with little to no European exposure or mature international companies with a lack of economic reliance is the best investment strategy to implement with the current state of the economy. Recent selloffs (aside from last week) have put many well-performing stocks at discounted prices, which may have created an opportunity to buy. With that being said, the best way to immerse yourself in this strategy is by entering into Philip Morris International (PM), Deere & Company (DE), and Whole Foods Market (WFM).
Philip Morris operates entirely outside of the U.S., providing cigarettes such as Marlboro and Virginia Slims in Europe, Asia, and Latin America among others. Philip Morris has enough geographic diversity and consumer demand for its products to provide for success despite its reliance on Europe. Cigarette smoking may be on the decline in the U.S., but it is still an enormous and growing industry elsewhere; particularly in China, Japan, Germany, and Russia. Outside of the litigation and regulations on the tobacco industry in America, international nations have considerably less hostile environments. Philip Morris has had steady earnings growth despite not completely breaking into growing tobacco markets such as India and China. These markets give Philip Morris enormous upside in the future if they were to make a significant entrance.
In regards to Europe, amidst slowing growth and a lack of demand, Philip Morris should not be too worried. Even though a drawback in Europe is not good for Philip Morris, the high numbers and frequency in which Europeans smoke gives Philip Morris reason to believe that consumers are literally addicted to their products and regardless of economic condition, will continue to buy their cigarettes. With less uncertainty in other regions such as the Middle East and Asia, even stronger sales should be expected. The tobacco industry is relatively detached from economic cycles, and Philip Morris' separation from the hostility of the U.S. tobacco market gives it even more of an opportunity to succeed, especially when combined with the prospects in emerging yet enormous markets that Philip Morris has not quite entered.
Deere & Company is another viable option to evade the European economic woes. Agricultural commodities have been at historically low levels, but it is doubtful that this will continue in the future. In principle, with a growing population combined with less and less farmers, as pointed out by Jim Rogers, who is extremely bullish on agriculture, demand will inevitably increase and cause prices to go up as well. Rogers is bullish on anything related to agriculture, and he is right for the most part. A way to invest in increasing demand for agricultural commodities is through Deere & Company. Approximately 50% of the world's population lives in urban areas and the migration trend is expected to continue, leaving a much smaller labor market for agriculture. As a result, mechanized farming will be on the rise in the future; providing Deere & Co. with an enormous opportunity domestically and in emerging markets.
The stock has suffered from low crop prices and from being relatively undervalued, as S&P points out they traded at about eight times EPS estimates, and continue to say that they believe that the stock should trade closer to thirteen times EPS estimates. S&P is predicting that it will end up on the high end of valuations, but with a resurgence in revenue and greater margins because of increasing crop prices it is entirely possible that John Deere rallies to $90-100 a share within the next 52 weeks. Deere & Co. does have some international exposure largely because of a launched effort in 2009 to take advantage of opportunities in global markets, but as pointed out on its investor website much of that international exposure comes from emerging markets as opposed to Europe. S&P said that Deere & Co. received 41% of equipment sales outside of North America last year, as opposed to 37% in 2010, which shows international reliance on the rise. The global exposure is somewhat unfortunate for the time being, but it is relatively protected as most of the business is coming from emerging markets and in the long run these efforts will help stimulate growth and build revenue. This is especially true when put in cohesion with North American crop prices that will inevitably rise, boosting profits on a somewhat short-term, as well as long-term basis.
Whole Foods Market averts Europe entirely, offering organic and natural food in the United States, Canada, and the United Kingdom. Whole Foods now operates 324 stores in these regions, and serves as a healthy yet luxurious supermarket option for customers. Recently, the company announced that it plans to open around 30 new stores next year, which is far from a staggering number. This may not be the short-term growth that investors want to see, but executives are still optimistic that there will be one thousand stores eventually which is much more meaningful in terms of long-term growth. Sure, it may just be internal optimism, but with continued success and earnings growth there is no reason to believe that Whole Foods cannot achieve this milestone in the near future. The supermarket expects to see 15% in sales growth this year, a number that other supermarkets cannot even come close to.
Whole Foods has growth and momentum all the while evading Europe, and also has another factor working for it; the wealthy are still making money and spending it. Despite decreased middle class spending in the past few years, high-end products are selling and doing quite well, which was evident in Michael Kors Holdings' (KORS) earnings beat this week and of course the Whole Foods earnings beat in the previous quarter. Not only are the wealthy spending, but they are spending and investing in healthy and organic food. This is a trend that should continue, and it is becoming more prominent with the issue of diabetes and unhealthiness spreading, as evident in Michelle Obama's campaign for good health. Whole Foods stock is expensive as it is only a few dollars off of its 52 week high and has a high P/E of 40.58, but with such solid prospects it is hard to imagine its momentum slowing anytime soon. Whole Foods has found its niche with consumers and the healthy food initiative will continue to increase customers, translating into increased profits. In addition, it has no exposure to Europe and exceptional long-term growth prospects, making it a good buy and one of the best plays available in the current market.
The European Crisis is a cloud over the market that seemingly will not relent. It is entirely possible to at least partially avoid it by investing in American companies with little European exposure and/or non-cyclical international companies. Philip Morris International, Deere & Company, and Whole Foods Market offer a way to do this all the while staying diversified amongst different sectors. These are the three best stocks to invest in to weather the economic storm that is Europe while concurrently offering tremendous upside as long-term investments.
