The United States is a ‘paradise’ compared to the rest of the world and investors should be looking at companies that make most, if not all, of their money in the country because these firms will be able to weather a downturn in the global economy a lot better, according to Bill Smead, CEO of Smead Capital Management.
The American economy is currently “reviving” one of its most important engines of growth, the domestic housing sector, which has seen about six months of positive data, Smead told CNBC Asia’s
GDP growth will be driven by this sector because some of the so-called “baby boomers’ kids” who haven’t bought homes will now find current low prices hard to resist, he added.
“There are 85 million baby-boomer kids in the United States, now the biggest population group in the United States next to baby boomers, who are 83 million,” he said. “Most of them have been late to start their married life, late to have kids and therefore late to start buying houses. But now rents are well above what it costs to make a mortgage payment, so (there’s) the natural progression.”
Housing is an important part of the U.S. economy, with residential investment contributing about 5 percent of GDP and housing services, separately, contributing between 12 and 13 percent. Together, they make up about 17 to 18 percent of GDP, according to the National Association of Home Builders.
“That is part of why we think it’s a paradise,” Smead said. “In other words, if you are Wells Fargo and you don’t have any financial interest outside the United States, the European debt crisis doesn’t affect you. On the other hand, if you are Citigroup and you’re a huge player in the Far East, it’s a problem.”
Smead likes stocks such as Walgreens , the country’s largest drug-store operator, Bank of America , one of the Big Four lenders, and Gannett , the country’s largest newspaper publisher by circulation.
He said Walgreens will continue to grow and Gannett will benefit from a pickup in advertising in the country. Bank of America is refocusing on the United States and its large stock of foreclosed U.S. homes will boost its earnings as home prices recover, he added.
- By CNBC's Jean Chua.