Do U.S. companies still rate top consideration when it comes to investing in technology? Some will say undoubtedly say yes. Our shores are home to Silicon Valley and the nearly equally legendary Route 128 corridor outside Boston. The world's biggest tech names were born here, and many of them are still growing rapidly.
Trouble is, that growth is increasingly coming from overseas. Both Apple and Intel said in earnings reports this week that international sales are rising as a portion of total sales. Intel, in particular, now derives 79% of total revenue from sources outside North America.
The rising tide of overseas investment
Fortunately, rising international consumerism isn't the only way to play tech globally. Some countries are spending aggressively to create new innovators to compete with the best the U.S. has to offer.
Only 178 of more than 600 global companies doubled in price over the past three years. Of those, 146 were based in the United States. Yet the median performance of that group ranked ninth in total return, according to S&P Capital IQ:
3-Year Median Return
R&D as a % of GDP (Latest)
|Brazil||1,093.6%||Brazilian Telecommunications||Not reported|
|United Kingdom||343.1%||ARM Holdings (NAS: ARMH)||1.79%|
|Argentina||225%||Mercadolibre (NAS: MELI)||0.51%|
|Singapore||173.3%||Kulicke & Soffa Industries (NAS: KLIC)||2.61%|
|Japan||168.9%||Internet Initiative Japan||3.44%|
|China||163.7%||Spreadtrum Comms, (NAS: SPRD)||1.49%|
|United States||159.1%||Acme Packet (NAS: APKT)||2.68%|
Sources: S&P Capital IQ, National Science Foundation data.
The trouble with looking back
Please note that this analysis isn't perfectly representative. I went searching for the countries that produced the highest returns, and in the process set a floor in my screen. Only stocks that had at least doubled over the past three years were considered.
So when the table says the median three-year return for German tech was 174% -- a period during which shares of software supplier SAP rallied about 70% -- you know that you're getting only a portion of the techies that call Bavaria home. (One in this case, Aixtron.)
Yet the directional trends are still fascinating, especially when you consider the top regional spenders on research and development. Israel, ranked third in median performance, produced four multibaggers and tops the list with 4.68% of gross domestic product (GDP) spending going to R&D, according to data collected by the Organization for Economic Co-operation and Development (OECD) and the United Nations Educational, Scientific, and Cultural Organization (UNESCO). (The National Science Foundation aggregated and published the findings.)
Spending to win
Commitment may have also helped to fuel the gains. While China was spending less than 1.5% of GDP on research and development in 2007 -- the last year in which formal statistics were available -- that figure still represents a huge increase over the prior decade. The rise of closely watched Baidu (NAS: BIDU) and China Mobile, among others, suggests that the Sino superpower has continued to invest heavily in the information technology sector.
This, Fool, in a nutshell is why you want to be looking more closely at China and Israel as a tech investor. Both countries appear politically committed to tech as a weapon in the war for worldwide economic competitiveness.
Expect to see them produce more innovation -- and more innovative companies -- as a result. History proves that the most innovative products are almost never created deliberately. Instead, they're typically the result of blue-sky experimentation. China (i.e., the fastest-growing R&D spender) and Israel (i.e., the top spender on R&D as a percentage of economic output) have the numbers to benefit from this sort of serendipity.
Finally, some good news for U.S. investors
Yet so does the United States. Top American universities still graduate some of the world's brightest, and the venture-capital infrastructure present in Silicon Valley is unparalleled anywhere else in the world. Also, by the numbers, the U.S. at 2.68% was still the third-largest spender on R&D among the top nine countries referenced in the first table.
Sure, the U.S. market is more mature -- a truism reflected by the lower median return noted in the table. But it's also worth nothing that more than 80% of the world's tech multibaggers from the past three years are based in the States, and many of them are investing as heavily in R&D now as they ever have been.
So, look abroad, and scour China and Israel for good opportunities. Maybe even consider a regional exchange-traded fund that covers the region you're interested in, such as the Global X China Technology ETF (NYS: CHIB) . But also don't forget to check your backyard.
America may be struggling, but American tech is alive and well. Do you agree? Disagree? Please weigh in using the comments box below. You can also keep tabs on the changing nature of the worldwide tech industry by adding any of the stocks mentioned in this article to your Foolish watchlist.
At the time this article was published Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool owns shares of Intel, Kulicke & Soffa Industries, China Mobile, and Apple. Motley Fool newsletter services have recommended buying shares of Mercadolibre, Intel, Apple, Acme Packet, China Mobile, and Baidu, creating a diagonal call position in Intel, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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