Multinational Stocks: A Smart Play in Down Markets

by Jason Jenkins, Investment U Research
Thursday, October 6, 2011

What do you do in a bear market? Most people would tell you to run and get out.

Thousands of investors are flocking to the perceived safety of Treasury bonds.

But as Alexander Green writes, the Treasury bond market is a calamity waiting to happen. And if you invest in short-term Treasury notes, you may as well stuff all your cash in the mattress, because you’ll get the same return.

What those who had success in the market know is that you don’t make money following the herd. You find opportunities. As strange as it may seem, geopolitical dysfunction in the United States and Europe may just provide that opportune moment.

Opportunities Exist Despite U.S. and EU Recession Fears

Last week, Warren Buffett made us take a look at possible stock buyback prospects. Along those lines of undervalued equities, we should also look at multinational corporations.

We have to remember that the current ups and downs we see on Wall Street for equities aren’t being driven by the bottom-line numbers of many companies. The primary cause of volatility is a lack of confidence in policy makers and officials.

One day the Eurozone says they’ll act accordingly to solve their debt problems. The market goes up.

The next day they tell you they need two months to discuss what they may or may not do. The market goes down.

This is the environment for bargain shopping, where you can pick up a company that can increase earnings.

Why Multinational Stocks Make Sense

Kathy O’Connor, the President at KJ Capital Management LLC, suggests that multinational stocks, if not undervalued, still represent good value for the following reasons:

Profit margins at multinational corporations are at record levels.

Multinational corporations benefited from a combination of a lower cost of debt, technological innovations and the transition to a global labor force over the last 40 years.

Global demand from emerging economies will allow these margins to remain intact for some time.

Long-term global demand will continue to outpace local demand.

O’ Connor went on to say that the majority of multinational companies are highly adaptable to changing conditions. And, unlike the U.S. government and European Union, they possess a stable financial base, giving them the ability to act quickly in pouncing on any global investment opportunity.

So what companies will take advantage of this landscape? In O’Connor’s opinion, take a look at McDonald’s Corp. (NYSE: MCD), Honeywell International (NYSE: HON), Procter & Gamble Co. (NYSE: PG) and Johnson & Johnson (NYSE: JNJ).

Beyond O’Connor’s recommendations, here are a few more companies that definitely fit into the multinational play due to their strong management at the top and the products they produce.

Their products are simple and they possess large cash positions that they use to invest heavily in high growth areas like China and India: Yum! Brands (NYSE: YUM), Colgate-Palmolive (NYSE: CL), Coca-Cola(NYSE: KO) and Nu Skin Enterprises (NYSE: NUS).

Good investing,

Jason Jenkins

Article by Investment U