One of the seven factors we use to determine a Q-Score is that of international sales. Many of the companies in the Quantigence DGI Portfolio have international sales which provide our portfolio with geographic diversification. International revenues are usually received in foreign currencies so they act as a natural hedge against a weakening dollar. This is why you constantly read these caveats that accompany earnings now which state that the strengthening dollar has negatively impacted results.
Firstly, let’s take a look at the 6 companies in our portfolio with no international sales.
All of the REITs in our portfolio (NNN,FRT,O) are U.S. property holdings. There’s nothing wrong with this necessarily because this is an asset class where you need to be familiar with the locale to really understand it. If you understand the geography of the U.S. and the popular franchises that occupy prime realty spots then you can better understand U.S. based REITs than the majority of international investors. If we had an international REIT it would be very difficult to understand.
Two of our utility stocks have no international sales.
Next Era Energy (NEE) fluctuates between the largest and second largest electric utility in the United States exchanging spots with Duke Energy which is its closest competitor by market cap. It has no international sales. One thing to note about NEE is that they are the largest renewable energy provider in the United States.
Aqua America (WTR) is one of the few “small cap” stocks in our portfolio with a history of strong dividend growth and capital appreciation. It has no international sales either.
Our “Consumer Discretionary” sector contains one stock that has no international sales which is Lowe’s (LOW). While Lowe’s has 40 stores in Canada and 10 in Mexico, these numbers pale in comparison to the 1,800 stores they have in the United States. It doesn’t seem likely that Lowe’s would grow these numbers because in 2014 their CEO was quoted as saying that “…if Lowe’s decides to expand overseas, they will look to do so by buying existing firms, rather than muscling in with more Lowe’s stores“.
All 6 of these firms do not seem likely to begin selling internationally anytime soon except perhaps Lowe’s which means all 6 firms are penalized -200 basis points for not having any geographical diversification. In our next two articles on this topic, we’ll examine the international sales exposure for each of the 24 remaining companies in our portfolio.