The Dow Jones index is unchanged since the start of the year and down less than 6 per cent on its all-time peak. One reason is a rekindling of interest in the big, often branded, high-quality multinational growth stocks - such companies as Coca-Cola, McDonald's, Gillette and Microsoft, with shares trading close to all-time peaks.
These stocks have been relatively neglected in recent years, as funds have switched to more cyclical counters. But now the pendulum is swinging back, presenting an opportunity for UK investors. If the dollar strengthens later in the year as some expect, that could be a further bonus.
The most important reason for buying these shares is that they are in transition from being US companies to global enterprises. This means that instead of being perceived as huge fish in the large but ultimately limited pond, they have the whole world to target for sales growth. One of the most dramatic developments in that world market is the emergence of millions of consumers with significant discretionary spending power and a taste for the material trappings of US culture - fridges, soft drinks, computer software, films and television programmes. The flavour of what is happening is reflected in two recent cover stories in the US business magazine Fortune. One highlighted the explosive growth of middle classes around the world; the other conjured up a picture of a global market for teenagers, with shared tastes and styles from London to Tokyo.
There is also a cyclical argument. Many of these companies have relatively mature operations in the US and are increasingly looking overseas for their future growth. This made their shares relatively unattractive while the US economy was booming but many world markets - notably in Europe and Japan - were depressed. Now that balance is likely to change, with the US economy slowing down while economic activity elsewhere picks up speed. Further benefit comes from an undervalued dollar, which makes US business highly competitive in world terms and means that their overseas earnings translate into large numbers of dollars. Last, but not least, is the way these great corporations have teamed to operate on foreign soil where, like McDonald's in Russia or Toys 'R' Us in Japan, they have plenty of tricks to teach the natives.
I have picked eight US companies to give UK investors quality exposure to these trends. The shares are Microsoft at dollars 52 7/8, McDonald's at dollars 60 1/2, Coca-Cola at dollars 40 5/8, Mattel at dollars 25 7/8, Whirlpool at dollars 56 1/8, Compaq at dollars 35 1/4, Toys 'R' Us at dollars 35 7/8 and Walt Disney at dollars 44 1/4 .
Not the least of the attractions of these companies is that they have huge experience in defending their brands against fierce competition. Investors are worried about brands, but they are still the ultimate repository of value in consumer markets. This is evident from supermarket own-label strategies, which try to mimic the branded originals as closely as possible. Brands will always command a premium as a reference point, a guarantee of consistent quality and a way for buyers to make a statement of relative affluence through their purchases.
In any case, the big brands show an increasing ability to fight on the value front. Analysts talk of McDonald's as almost a reborn company in the 1990s on two counts. First, it has packaged its meals to offer better value, with all-in prices for, say, a burger plus more fries and a large coke at much less than those items were sold individually in the past. Secondly, it has cut up to a third off the capital cost of opening a new restaurant, enabling it to open perhaps 1,200 rather than 900 a year and operate in smaller population centres.
As a result, analysts are looking for earnings per share to reach dollars 3.35 in 1994 and dollars 3.90 in 1995. That compares with dollars 2.91 in 1993 and just 40c in 1978.
The ratings for these stocks have mostly become much more reasonable. By 1995, on these forecasts, McDonald's will be on a price-earnings ratio of 16. Coca-Cola shares have gone nowhere for two years, but in that time the p/e has dropped from 29 to 21.5 and according to the analysts' forecasts it will drop further to 18 in 1994 and 16 in 1995. Just ending the derating would produce capital growth in line with earnings growth - 15 per cent or more a year. A rerating would boost that further, and some of these companies also pay dividends.
One that does not but looks particularly exciting is Microsoft, which is putting together a spectacular customer base. It has sold an estimated 50 million Windows operating software packages and is adding to that customer base at the rate of 2 million copies a month. New launches planned for this year including a networking product, Windows NT, and a dramatic upgrade to Windows codenamed Chicago. It is also shaping up as a key player in futuristic new markets such as multimedia and the information superhighway.
Share prices tend to be high in nominal terms, but dealing is simple with execution-only operators offering a service on US shares. As a home for long-term money offering exposure to global growth, the stocks listed above look hard to beat.
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