It’s no secret that the global economy is on a weak footing. Many multi-nationals are taking hits to their growth and will have tough times booking gains in 2016, but a great strategy to avoid this trap is to start making investments in companies that only do business in the States.
The stock markets started out 2016 with a steep decline driven by the news of a slowing Chinese economy. At midday on Monday, January 4, the Dow Jones Industrial Average was down by 370 points, or 2.1% and the Nasdaq Composite was off by 127 points or 2.5%. Leading the way down were the U.S. companies with multi-national businesses. The global economy continues to soften and investors may be better served over the next few years by in companies that do the majority of their business right here in the States.
In 2015, the best returns came from tech and other stocks that were growing internationally. The best example may be Netflix, Inc. (NASDAQ: NFLX), which gained 138% in 2015. Netflix is counting on international subscriber growth to generate a growing revenue stream. Almost everyone in the U.S. who would subscribe to Netflix already does. Another company counting on international growth is Starbucks Corporation (NASDAQ: SBUX) which gained 52% last year. A slowing global economy will make it tough for Starbucks to get close to repeating last year’s gains. Overall, stocks may have a tough time in 2016 just because the big multi-national companies will not be able to generate much in the way of earnings growth. These companies and their results tend to drive the overall market.
For 2016, I think a focus on dividend-paying shares of companies that do all or most of their business in the U.S. may produce better returns for investors. The U.S. economy is in a slow-growth mode, but it is still growing. Medium to high dividend yields will generate most of the returns, with some revenue growth fueling modest dividend increases. At the end of 2016, earning a 5% to 7% or higher yield with some dividend increases may look a lot better than the share values of former high-flying stocks that need international sales to grow.
