International Exposure: Time To Do a 180?

Uh oh.  Now the rest of the world is sliding into our abyss...

It was patently obvious to me very early Friday as one of my clients called me frantically about the soaring dollar and every stock I watch with low international exposure was soaring from the get-go.  Yes, we hit a round number on the Euro - 1.50, and suddenly it's not so trendy to have massive exposure to foreign economies relative to ours.

I don't make the rules, but this game is going to continue.  I haven't really been harping on this whole aspect of the market, though I was wondering how long it would take for everyone to realize that no, this time is not actually different.  In fact, the world has become so much more interconnected that it would seem almost impossible to have one huge economy be at odds with the rest of the world.  The "optics" have been good for our multinationals, seeing top-line growth (and to an extent earnings) buoyed by our weak currency. 

I have mentioned that rather than chase large international exposure, a better strategy seems to be to find companies that are experiencing large international growth off of perhaps a small base.  I own Carlisle (CSL), Middleby (MIDD) and Astec (ASTE), who all share this characteristic.  They gain from true growth rather than a currency game.  If you click that article, you will see that my crystal ball certainly wasn't too helpful, as several of the ideas mentioned in the article haven't worked (hopefully just "yet").  At any rate, I continue to believe that there is some core economic growth coming from different parts of the world, but the real gains will come from those companies that are able to serve "new markets" as opposed to ride the shrinking dollar.

So, with big money running from Energy, afraid of Financials, doing an about-face on multi-national Industrials, what is the beneficiary?  There are a bunch of Industrials, particularly service-oriented firms, that operate exclusively here.  I believe that investors haven't really paid much attention to them recently due to their lack of exposure, at least directly, to international sales.  One that comes to mind, about which I wrote earlier this year, is Cintas (CTAS).  I plan to investigate it and its peers a little closer as they are cheap and could benefit greatly from a reversal in energy prices as well.  This is just one of about 100 stocks that I intend to investigate further and may or may not be the best way to take advantage of this shifting focus.

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Consumer Discretionary stocks in general should benefit, as many of these have a pure domestic focus.  Additionally, they are importers, and many have been citing rising costs, especially shoe retailers.  I own several retailers with pure domestic focus and have written about all of these:  BBBY, SCVL, LOW, MW. 

Yes, as the crowd starts to turn the other way, they will focus on companies with high domestic exposure.  The reason is partially that these companies could fare better or less worse if the dollar continues to reverse course, but the more important aspect is that investors have been shunning pure domestic companies for some time and have left a valuation disparity in my opinion.  I just wrote a bullish piece on Technology, and I probably need to reconcile that view with my cautionary words regarding high international exposure. 

Disclosure:  Long CSL, MIDD, ASTE, BBBY, LOW, MW and SCVL