Behind the Money

Forget Europe: Market Pros Say It's Time to Buy US Stocks

The "buy American stocks" trade is gaining backers by the day—including Goldman Sachs on Tuesday—as US economic indicators continue to show improvement and investors become less-focused on Europe.

Wall Street

“Cyclical areas of the U.S. economy improved in late 2011 from low activity levels and we expect that trend to continue in 2012 as auto sales improve and housing activity bottoms,” said Goldman equity strategist David Kostin, in a note to clients.

“Select companies exposed to those areas of the economy have attractive risk-reward if activity normalizes, even without a strong recovery,” he added.

Those stocks include Ford , Ingersoll-Rand ,CSX ,Lowe’s and Toll Brothers , according to Goldman.

The S&P 500  is up eight percent over the last three months, compared to a mild gain for the iShares MSCI Emerging Markets Index   and a two percent loss for the iShares MSCI EAFE Index Fund  , which tracks global developed markets.

“The U.S. economy, though sluggish in recovery relative to past expansions, is superior to most of the world's economies (with the exception of some emerging markets) in terms of diversity of end markets, quality of global franchises, management expertise, operating execution and financial foundations,” said CNBC ContributorDoug Kass of hedge fund Seabreeze Partners Management, in a recent note.

“Conditions have evolved over the near and intermediate term that have conspired to favor risk assets in the U.S. over many other areas of the world.”

The December unemployment ratefell to 8.5 percent from 8.7 percent, according to data released Friday. That followed better-than-expected readings in the first week of the year on the service and manufacturing portions of the U.S. economy. As Greece and Italy implement mandated austerity plans, investors expect European economic growth to muddle along.

“Once it became clear spending was not following confidence down, businesses have begun again to hire, supported by better bank credit conditions,” wrote Ian Shepherdson of High Frequency Economics, following the Friday jobs report.

“We see these trends as sustainable: This is the real deal for the U.S. economy, at last.”

Individual company analysts are catching on as well.

Bank of America/Merrill Lynch upgraded Hyatt Hotels and Marriott   Tuesday citing their “minimal exposure” to Europe. Both companies generate less than 10 percent of their cash flow from the region, according to the analyst.


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