You can call it the “Donald Trump effect.” Throughout both the campaign and the actual administration, the president has routinely stated that he will put America first. While the major domestic indices aren’t exactly lighting up the stat sheets, U.S. stocks are at least gaining some traction.
In contrast, international markets are noticeably struggling. The can’t-go-wrong China-based exchange-traded fund, iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI) is at parity for the year. Not only that, the FXI has largely stagnated since February. The iShares MSCI Germany Index Fund (ETF) (NYSEARCA:EWG), a key European benchmark, is doing worse, down 5.5% year-to-date.
Why is it that the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), which holds key U.S. stocks, finally entered positive territory while its international competitors lag? One factor is the back-and-forth involved in the China trade war issue. It’s hard to discern how this conflict will pan out, but the latest signs don’t look great.
If a trade war does occur, that’s obviously a negative for U.S. stocks as well. However, another element to consider is our currency. While the greenback has nosedived throughout Trump’s presidency, since Feb. 1 of this year, the dollar index has jumped 6.4%.
In theory, a stronger dollar signals confidence towards U.S. stocks. But for some emerging markets, a rising greenback equates to increased debt-servicing costs.
Although nothing can be taken for granted, domestic investments overall look comparatively brighter. Here are three U.S. stocks to buy as international growth slows.
U.S. Stocks to Buy: Best Buy (BBY)
When the dollar rises, American consumers win. That’s why investors should consider a contrarian, and somewhat risky, play in Best Buy Co Inc (NYSE:BBY). As many of my readers know, I’m not the biggest fan of brick-and-mortar retailers. However, Best Buy is one of the rare and believable turnaround stories.
Management has shifted their focus on what works, and eliminated what doesn’t. In addition, BBY deploys out-of-the-box thinking to boost revenue opportunities. Late last year, I discussed the company’s growing emphasis towards senior-living solutions, including safety cameras and monitoring devices.
However, BBY stock hasn’t produced much joy in the markets. Despite producing better-than-expected first-quarter earnings and sales results, shares absorbed massive body blows. Why? Online sales growth declined against the year-ago quarter.
In my opinion, that’s not an excuse to jump ship. BBY produced same-store sales growth of 7.1%, which was substantially higher than analysts’ consensus estimates of 2.9%. At a time when physical retailers are struggling to maintain relevancy, these numbers are golden.
So far for the month, BBY stock is staring at double-digit losses. Again, I don’t find this to be a reasonable reaction. Nevertheless, shrewd investors can use this irrationality to their advantage.
U.S. Stocks to Buy: SunTrust Banks (STI)
Banking institutions are a tricky play in this market. While the recently surging dollar has corresponded with falling unemployment, interest rates have also risen. That’s positive for banks in that they can charge more for their loans. On the flipside, too high of an interest rate can also stymie a delicate economic recovery.
But in our current market phase, regional banks such as SunTrust Banks, Inc. (NYSE:STI), offer more decisively compelling opportunities. Unlike the “big four” banks like JPMorgan Chase & Co. (NYSE:JPM) or Citigroup Inc (NYSE:C) that have branches in every corner of the earth, SunTrust is localized. For investors, that means little to no exposure to international headwinds that could negatively impact the share price.
That also means that STI is exposed to largely the “good side” of a rising dollar. With more people working, and with more value associated with their paychecks, regional banks enjoy more business opportunities. Maybe the current economic recovery isn’t enough for wholesale moves into home purchases. However, workers are likely to buy that car for which they’ve been saving.
I’d also argue that STI stock is more aligned with most shareholder interests than a JPMorgan or Citigroup. Since SunTrust focuses on the American market, they don’t need to embroil themselves with foreign concerns.
U.S. Stocks to Buy: Texas Roadhouse (TXRH)
On this U.S. stocks to buy list, Texas Roadhouse Inc (NASDAQ:TXRH) inarguably has the most American-sounding name. But I’m not including TXRH simply for superficial factors like that. When the greenback is strong, domestic eateries are more likely to benefit than their internationally exposed counterparts.
That’s not to say that you should automatically avoid companies like McDonald’s Corporation (NYSE:MCD) whenever the dollar index hits a rough patch. However, a stronger dollar makes foreign currencies relatively weaker, and could present a headwind to international sales.
Texas Roadhouse is mostly an ‘Murican business serving real ‘Murican food, undoubtedly making President Trump proud. As with regional banks, TXRH and other domestic eateries accrue the benefit of a confident economy without international sales slowing them down.
That said, TXRH isn’t 100% made in the USA. In recent years, management has looked overseas to expand their footprint. Most of their international restaurants are located in the Middle East, but the company is also pushing towards Asia. Texas Roadhouse entered the Philippines market, and they also have a fairly strong presence in Taiwan.
Thus, TXRH is a two-way opportunity among U.S. stocks. Its mostly centered in the American market, and thus advantages the rising dollar. However, the company is expanding into high-dollar international locales which represent a net benefit.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
