The Next YUM! Brands … By Jeff D. Opdyke, Editor, The Sovereign Individual Dear Sovereign Investor, I was in a train station in Bratislava, Slovakia, with a terrible headache. I walked up to the window of the small kiosk and pointed to a packet of Tylenol. In making that purchase, I was feeding the global sales of Tylenol's parent company – Johnson & Johnson. American blue-chip behemoths like Johnson & Johnson are called multinationals because their products and presence are evident in just about everywhere around the world. You've no doubt heard many times that investing in these U.S. giants is the perfect way to go global with your greenbacks: Hang on to the coat tails of these big boys and, as their sales around the world surge, watch your dollars grow.
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It's a great theory, except for one, very important detail – it's not always true. The great attraction of big multinationals has been that they give you easy exposure to places you'd never likely invest in on your own – Nigeria, Egypt or Vietnam. Investors Need Growth to Make Money The problem is that with size comes the law of large numbers. Take Coca-Cola, for example. Sales of Coke around the world are so large the company could add Bangladesh, Sri Lanka, and several African countries to its line-up (actually, Coke is already in many of these places) and it wouldn't add much pop to the top or bottom lines… In some ways, Coke reminds me of America's bloated budget … both are so big that incremental moves mean very little. That, in turn, means the additions aren't likely to cause a ripple in the company's stock price. Or let's go back to my Tylenol experience in Bratislava … Johnson & Johnson posted total 2011 sales of $65 billion. That included a 10.2% jump in overseas sales of more than $35 billion, or around 54% of its total sales. A decade earlier, the company sold $12.5 billion of consumer drugs and medical products overseas, representing less than 39% of global sales. Yet, in a decade that saw Johnson & Johnson's overseas business blossom, the stock price gained less than 1% a year. You could have done better in a basic savings account. Global growth clearly made this large company larger, but it didn't do much for the shareholder. The time to have owned these blue-chip multinationals was when they were much younger, much smaller and just beginning to penetrate foreign markets. Finding Bigger Rewards I have examined literally thousands of burgeoning U.S.-based companies that are looking beyond America's borders to ensure their future growth. These are the companies – I call them baby multinationals – that have years of explosive overseas growth ahead of them still. These baby multinationals – smaller, unheralded companies that trade in the U.S. stock markets – are grabbing a large share of their profits from fast-growth overseas markets. Because so much of their operations are outside the U.S., they are not as tied to America's frail economy and they provide the greatest opportunity to deliver triple- and quadruple-digit growth to investors. Last July, I told you about PriceSmart, a much-smaller version of WalMart. From its base in San Diego, PriceSmart has continued to expand across Latin economies and most recently established a toehold in South America with its first store in Colombia. Since my initial recommendation PriceSmart is up 17% and is headed higher still. If you missed out on that one, don't worry. I have another one. Brinker International, the fast-growing, Dallas-based restaurant company that you know of because of its leading brands – Chili's, Romano's Macaroni Grill and On the Border Mexican Grill & Cantina. Brinker has its 1,500 eateries spread across 32 countries in Asia, North and South America, Europe and the Middle East. This year, Brinker expects to open between 35 and 40 new outlets overseas – but only three or four will be in the U.S. Clearly, the company's focus is now global. A Strong Baby Multinational Play Already, roughly 16% of sales are overseas and that's expected to increase to about 19% by the end of this year.
As an investor and a keen observer of emerging markets and trends, I see Brinker as an early-stage YUM! Brands, the company behind KFC, Pizza Hut and Taco Bell. I expect Brinker to follow a very similar path overseas, where locals with increasing discretionary income to spend love American food chains.
In spite of YUM!'s strong presence in the U.S., the stock is now widely regarded as an emerging market play because of its strong growth overseas. Over the next three to five years, I expect we'll see Brinker emerge in similar fashion. It will become a strong baby multinational play for its exposure to emerging economies.
While many U.S. investors gravitate toward big, multinational stocks to gain exposure to overseas markets, the real opportunities exist in baby multinationals.
Until next time, keep a global view... 
Jeff D. Opdyke
P.S. Brinker is only one of many baby multinationals I've been keeping an eye on. Just recently, I've identified a company that has the potential to become the McDonald's of Latin America. For a once-in-a-lifetime opportunity to get in on this company before it explodes onto the global scene, click here to read my exclusive research report.
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