Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Global Consumer Franchise Stocks –Surely Value lies with these Stocks not Bonds!

Stock-Markets / Stock Market Valuations Sep 03, 2010 - 09:21 AM GMT

By: Rory_Gillen

Stock-Markets

Best Financial Markets Analysis ArticleTo say that the 2000s have been a difficult period for investors in risk assets is an understatement. Equities have suffered two significant bear markets and the bursting of the property bubble and resultant global banking crisis brought the global economy to its knees. And the ordinary saver, looking for a risk free return, is suffering too with generational low interest rates. And to cap it off, the Greek debacle has highlighted that even government bonds are not risk free. One might justifiably ask – is there any port in this seemingly endless financial storm?




The US global consumer franchise stocks offer the most basic of products or services yet have unique attributes that investors often overlook. They offer defensiveness in their earnings, no financial risk (currently), mixed currency and emerging markets exposure and, following the decade long bear market in equities, better value than they have in possibly two decades.

The enclosed Table A, which highlights the earnings and dividend statistics of the US market (i.e. the Dow Index) and the US global consumer franchise stocks, makes a number of striking points. The first point is that the overall US equity market was substantially overvalued in late 1999. Investors were paying 27 dollars for every dollar of earnings. Looked at another way, investors were buying an earnings yield of 3.6% (100 / 27.4 = 3.6%) in late 1999 at a time when the US 10-year government bond was offering a substantially higher, and risk free, yield of 6.5%.

The second point is that at that same time in late 1999, the US global consumer franchise stocks were, in aggregate, trading on 35 times earnings and offering a dividend yield of only 0.8%. Hence, these stocks were priced at a significant premium to an already overvalued market at that time. The third point is that the US market is substantially cheaper today, trading on 14.3 times earnings. The US global consumer franchise stocks are trading on a similar rating, a highly unusual occurrence.

Looking back over a number of cycles (Table B) highlights that the earnings yield on this selection of US global consumer franchise stocks was an attractive 6% back in the late 1980s. But at that same time the US government 10-year bond was offering a yield of circa 8.0% and competing hard for an investor’s money at that time. Today, however, the US government 10-year bond yields a paltry 2.9%. Said another way, the earnings yield from this selection of US global consumer franchise stocks represented 0.75 times the bond yield in late 1999. Today, the earnings yield available from these stocks is more than twice the bond yield. And this does not even take into account the high probability of growth in that earnings yield from here.



The resilience of earnings in these franchise stocks and their ability to grow their earnings over time marks them apart from equities in general. For example, the repetitive nature of the demand for Coca Cola’s products in difficult as well as buoyant economic conditions, its bullet proof brand and global distribution power provide its earnings with this resilience. Likewise, McDonalds’ low price points, speed of service and consistency of product have allowed it to consistently dominate the fast food industry globally and to deliver reliable growth over time. Proctor & Gamble has a collection of multi-billion dollar brands in household & personal care products where, again, demand is steady in good times and bad.

If earnings from the US global consumer franchise stocks are as reliable as the income from a government bond, and they have been in the past, then surely the value now lies with these stocks and not with the bonds. Throw in emerging market exposure, a mixed spread of currencies and a history of reliable growth and the value proposition is even more promising. Most likely, investors’ fears of a double-dip recession have driven them to bonds. But the value is clearly in the US global consumer franchise stocks double-dip recession or not. Bonds were the better investment in 1999…but not anymore!

If you want the full version and analysis download the e-book click Global Consumer Franchise .  

As Ben Graham, value investor and author of ‘The Intelligent Investor, 1949’ said ‘In the short term the market is a voting machine but in the long term it is a weighting machine’. In my view, the weight of value is strongly in favour of these resilient global giants.

Rory Gillen
Founder
www.investRcentre.com

Rory Gillen is a qualified Chartered Accountant, a former equity analyst, stockbroker and fund manager who has spent over twenty years working in the financial services industry. He founded The InvestR Centre in 2005 as a stock market training company. www.investrcentre.com

© 2010 Copyright Rory Gillen - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in