Made in USA Label Pays off For Investors

Adam Shell,

NEW YORK — The benefits of the Made-in-the-USA marketing tagline now apply to stocks as well as shoes, SUVs and software.

How so? With Europe hobbled by debt, white-hot China cooling and emerging markets slowing, stocks of U.S. companies that get most of their revenue from U.S.-based sales are performing better than companies that do 50% or more of their sales abroad, where things aren’t going as well.

The part of the world where a company makes most of its money can be the difference between a great investment and an OK one. In the past 12 months, U.S. stocks that generate all sales at home are up an average of 18.6%, vs. a gain of 6.2% for American firms that get more than half of their revenue from abroad, Bespoke Investment Group says.

“A major theme of 2013 has clearly been a preference for U.S.-centric stocks,” says Paul Hickey, Bespoke’s co-founder. Why? “The U.S., relative to the rest of the world, is the strongest economy.”

That trend helped drive the Standard & Poor’s 500 index to an all-time closing high Thursday and a 10% first-quarter gain.

Domestically focused companies are also sporting better earnings growth as well as benefiting from inflows of capital from foreign investors that view the U.S. as a haven, Hickey says.

One of Wall Street’s biggest winners this year is media subscription service Netflix, which gets less than 3% of its sales outside the U.S., says S&P Dow Jones Indices. Netflix shares are up 104%. In contrast, tech player Qualcomm, which gets nearly 97% of revenue from abroad and recently warned of slowing growth in Asia, is up 8.2%.

Nearly half, or 46%, of sales of companies in the S&P 500 occur overseas, says Howard Silverblatt, an analyst at S&P Dow Jones Indices.

Analysts also see positives in the All-American story, as they have been issuing more positive earnings revisions than negative ones in the past four weeks.

The U.S. market, and particularly domestically focused names, have held up better than foreign stock markets recently following the “Cyprus Surprise,” the latest bailout in the eurozone to spook global investors. Also driving the better performance is the spate of better-than-expected economic data this month, which prompted Barclays to up its first-quarter U.S. GDP estimate to 2.6% from 1.6%.

While U.S. shares have performed better than a broad index of foreign stocks for more than two years, the outperformance has been particularly acute since late 2012 when the U.S. averted a fiscal crisis and election-related political gridlock weighed on sentiment.

“Once the ‘fiscal cliff’ negotiations were settled, U.S. stocks rebounded and haven’t looked back,” Hickey says.

---