Global Growth Raises U.S. Export Prospects

Investors with a rosy outlook for U.S. stocks are counting on increased global demand for American goods and services to sustain corporate profit growth.

A global resurgence couldn’t come at a better time for U.S. stocks. Props that raised the altitude of U.S. equity market by about half since January 1995 - corporate restructuring and surprising strength in the U.S. economy - are expected to sputter in the months ahead.

“The global economy is going to surprise everybody,” said Peter Canelo, director of investment strategy at Dean Witter Reynolds. “It’s going to be great for profits.” He expects earnings to expand by a little less than 10 percent in the coming year, roughly on par with this year’s rate so far.

Dean Witter estimates about one-fourth of Standard & Poor’s 500 companies’ revenue come from outside the U.S., based on tabulations of 419 companies that broke out sales figures. Canelo doesn’t break down what portion of profits he expects to come from overseas.

Most likely to benefit are larger-capitalization international companies such as razor maker Gillette Co., which generates 70 percent of its sales overseas as well as personal computer makers like Compaq Computer Corp., which sells about half its PCs and servers outside the U.S.

Shares of companies that profit most when economies are expanding, such as chemical and energy firms, will also probably get a boost. Dean Witter’s Canelo has his biggest bets with earth movers Deere & Co., Case Corp. and Ingersoll-Rand Co.

Especially sweet for U.S. stocks would be growth in Europe, which is showing more strength after languishing for the past couple of years, many analysts said.

U.S. companies benefit more from accelerated growth in the European Union, because trade between the U.S. and that region flows freer than in other parts of the globe, said Howard Lewis, a trade analyst for the National Association of Manufacturers.

“Significant European growth levels have clearly benefited U.S. manufacturers,” he said.

Lower interest rates in the U.K. and on the continent are boosting optimism.

“Part of the enthusiasm domestically is the prospect for European growth,” said Philip Schettewi, who helps manage $4 billion as a partner at Loomis Sayles & Co. in Washington.

Schettewi sees promise in chipmaker Texas Instruments Inc., which said in its latest quarterly report it expects semiconductor consumption to double in the next five years worldwide.

Strategist Abby Joseph Cohen of Goldman, Sachs & Co. expects earnings to improve by 10 percent to 11 percent, helped by the economic reinvigoration of U.S. trading partners.

While some companies are exploring new sales prospects in Asia, many countries in the region are experiencing economic slowdowns. Japan’s economy contracted 0.7 percent in the second quarter, in contrast with a 3.1 percent gain in the first three-month period this year. Smaller countries such as Taiwan and South Korea are seeing their exports slow, and as a result may have less demand for imports from the U.S.

Government officials in Japan remain optimistic for a gradual recovery. And companies such as Starbucks Corp., the fast-growing Seattle-based coffee shop chain, are plowing ahead with expansion plans.

Starbucks opened its first non-U.S. outlet this summer in Japan, and it expects to have 11 more retail shops in next year.

Many investors are warming to Starbucks’ strategy for expanding profits.