These U.S. Exporters Could Get Stuck in Europe’s Muck

Europe's fiscal mess continues to dominate the headlines. Late Wednesday,
stocks sold off sharply after fresh warnings surfaced over the potential impact
of the euro zone's debt crisis on the global economy and banking system. The
markets further dipped Thursday on concerns about French and Spanish bond
yields. Ratings agency Fitch cautioned that U.S. banks could be "greatly
affected" if Europe's debt crisis is not resolved quickly. That news caused
traders to dump bellwether financials such as Bank of America (NYSE: BAC ),
JPMorgan Chase (NYSE: JPM ), Goldman Sachs (NYSE: GS ) and Morgan Stanley (NYSE:
MS ). But it's not just U.S. banks that could begin to feel the wrath of
Europe's debt debacle. If the debt mess prompts the region to roll over into
recession, it could wreak havoc on U.S. companies who rely heavily on revenues
generated from European exports. According to Standard & Poor's, companies in
the S&P 500 Index saw about $1.36 trillion in European sales last year, which is
approximately 30% of all overseas sales. That makes Europe the largest market
for U.S. goods. That number is significant, but it might be even greater, as
many companies don't break down their foreign sales by region. What this means
is that any substantive decline in Europe's ability to buy goods from U.S.
companies almost certainly will have a negative effect on many corporate bottom
lines. So, what stocks are most vulnerable to a debt-induced euro zone
recession? The most obvious answer is companies that have a lot of European
exposure. In a Nov. 8 note , Citigroup Research said that "deeply cyclical"
industries would be most affected, but the note also said defensive sectors were
particularly susceptible to a European slowdown. On the cyclical front, we have
companies like Ford (NYSE: F ) and General Motors (NYSE: GM ). GM recently
reported that its third-quarter net profit dropped 15% due to losses in Europe,
so we're already starting to see companies stuck in European muck. Defensive
giants such as Coco-Cola (NYSE: KO ), Philip Morris (NYSE: PM ) and Kraft Foods
(NYSE: KFT ) all have significant exposure to Europe, and all rely heavily on
sales in Europe, the Middle East and Africa for a significant portion of their
respective revenues. Other companies with heightened exposure to Europe include
gold and copper giant Newmont Mining (NYSE: NEM ), chemical maker DuPont (NYSE:
DD ) and even fast-food behemoth McDonald's (NYSE: MCD ). Tech is vulnerable,
too especially firms like diversified enterprise storage and software giant EMC
Corp. (NYSE: EMC ). To put a twist on a popular phrase, what happens in Europe
doesn't stay in Europe. If a recession hits the euro zone, investors holding
the aforementioned companies might want to duck and cover. (And to protect your
portfolio from Europes problems, check out these two homegrown sectors with
healthy U.S. companies that do all their business domestically.) As of this
writing, Jim Woods did not own a position in any of the aforementioned stocks.