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U.S. Companies Offer Opportunity in this Slow Recovery

John Carey
calender-icon Posted on May 17, 2012

The United States continues to grow. Certainly the job growth during this recovery has been slow, and indeed the whole pace of the recovery has been disappointing by historical standards.  However, there are benefits to a slow recovery, in that:

  • Companies can plan more carefully and deliberately rather than feeling pressed to hire and expand rapidly to keep up with their competitors.
  • Companies are maintaining very strong balance sheets because they have been able to pace their spending and let current operating cash flows cover the costs of their expansion.
  • The cash reserves at companies have made possible some quite generous dividend payments over the past couple of years.

The stocks of larger companies – or blue chips – usually pick up steam in the middle years of an economic recovery, and that is where we appear to be right now.   In the first stages of a recovery, investors tend to favor the stocks that got hit hardest during the downturn, and those stocks are generally of lower-quality, more cyclical kinds of companies. After the low-quality move, however, investors often begin to favor the good, steady growers, and those would be the blue chips.

Exposure beyond U.S. Borders

Many large, multinational companies offer investors exposure to the growth of emerging markets without incurring the risk of buying local shares. Outside the U. S. and Europe and a few other “developed” parts of the world, accounting standards are often not very strict, legal protections are fewer, political risks are higher, and information is harder to obtain.  Of course, you have the chance for big profits if you know the right companies in which to invest, but for the average investor it is perhaps an approach worth considering to let the big, established companies with experience doing business in other parts of the world make those decisions for you.  

If you own shares of, for instance, Colgate Palmolive or H. J. Heinz or IBM or Exxon Mobil, you have participation in many non-U.S. markets and can benefit from their growth without feeling you must be following every latest bulletin from BBC World and getting up in the middle of the night to check on prices at the opening bell in countries at the far ends of the earth.

Election Year Opportunities?

At the moment, the November election result is pretty difficult to forecast.  Chances are that the election will be close, and between now and November there could be events that influence voters to decide differently between the two candidates than they may currently be leaning. With regard to companies and industries that might do better or worse under one administration versus the other, most people tend to focus on the energy, health-care, and financial-services industries as the ones where the repercussions could be greatest. But I do not see the picture very clearly just yet and would advise waiting on making judgments till the candidates set forth their platform positions and we have some polling results that might be more reliable.


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