After years of blockbuster growth, the Chinese economy is slowing down. This is taking a toll on some American companies that do business there, in the form of unsold inventory and higher labor and commodity costs.
But don’t write off China just yet. There are still plenty of American companies making a mountain of money there. This means that many U.S. stocks are going to live or die based upon their success (or lack thereof) in China. I’ll talk with you about one of the most-promising ones in today’s video.
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Hi, this is Tony Sagami for Uncommon Wisdom Daily.
After years of blockbuster growth, the Chinese economy is slowing down — and it’s beginning to take a toll on some American companies.
Consider Caterpillar’s recent quarterly report. The heavy-equipment-maker posted a 23% increase in sales, while profits surged by 29%. Yet despite that strong performance, Caterpillar shares fell 5%.
And if you look behind the headline numbers, you can see why.
Sales in China declined by up to $300 million, resulting in too much unsold inventory. A Caterpillar executive said the company plans to ship 20% of that inventory to other Pacific Rim countries, but it could take the rest of the year to work it down.
Meanwhile, YUM! Brands, the operator of Pizza Hut, Taco Bell and KFC, reported fourth-quarter same-store sales growth of 14% in China, down from 21% a year earlier. YUM! also complained of higher labor and commodity costs.
Another company suddenly struggling in China is Otis Elevators, a unit of United Technologies. In the first quarter, its orders fell 9% as the Chinese real estate market keeps getting worse and worse.
These numbers all point to the same conclusion: The Chinese economy is slowing down, and it may be slowing more dramatically than most experts are predicting.
Now don’t get me wrong — there are still American companies making a mountain of money in Asia — Apple, Coach and Las Vegas Sands among them.
In fact, Apple’s sales in Asia are rapidly catching up to the United States. In the first quarter, Apple’s Asian sales totaled $10.2 billion, versus $13.2 billion in the Americas. CEO Tim Cook called the results “mind-boggling,” and I wouldn’t be surprised if Asia overtakes the U.S. by the end of this year.
This should be a reminder that if you’re investing in any companies doing business in Asia, you have to be very choosy and pick your spots carefully. Because many U.S. stocks are going to live or die based upon their success (or lack thereof) in China.
I’m Tony Sagami for Uncommon Wisdom Daily. Thanks for watching.