Monday, December 14, 2009

Large Caps Breaking Out - Johnson & Johnson (JNJ), Coke (KO), IBM (IBM), Merck (MRK), Verizon (VZ), Disney (DIS), 3M (MMM)

Aside from some of the more speculative stocks, especially of the Chinese kind, much of the action of late has been in the large and mega cap areas.  As I try to think "big picture" over the next 10+ years, one of my thesis go forward, is simply a continuation of a trend that has been happening the past 5-10+ years.  International borders will mean less and less, the "home country" of a multinational means little (other than for political favors), capital is king, and labor will be exploited as humans in 1 country are wage arbitraged against another.  (As we have mentioned many times, IBM is the first US company I have heard of that has offered to allow Americans to keep their job if they move to India... at Indian wages of course. I expect much more of this in the decade forward)  Hence overall costs will be low as labor is generally the #1 cost of almost any company.  On the revenue side of these companies, Western politicians in desperate attemps to keep their jobs shuffle money to their strained consumers via borrowing and printing (until the house ATM comes back at least), while in the East consumers are obviously organically growing into middle class (while their government's also help stoke demand).

Further, in the US (as opposed to Europe), the Federal Trade Commission is a "friend of business" and oligarchies have been built in many US industries. (ex.: telecom, technology, banking, drugs, even retail with Walmart taking 1 of every 10 dollars). Last, in the US we have 'dog eat dog' corporate socialism where shedding workers is very easy - as opposed to in Europe; another benefit to domestic multinationals. This is shaping up to the golden age of multinationals, especially of the US kind.   In fact, I am reading now that borrowing costs for some of these massive multinationals are actually lower than some at risk countries; which shows you how entrenched they are compared to some sovereign debt!  While not my favorite spot to invest because getting a double in a $125B market cap company is much harder than a $700M company, the stocks are reflecting the benefits listed above - along with their exposure to overseas consumers (doing better than Americans), and a punched in the face currency (helps exports).

Below are a list of some stocks breaking out - note the action in parallel with a stock market that has gone nowhere the past 5+ weeks.

Johnson & Johnson (JNJ) $180B market cap

IBM (IBM) $170B market cap

Coca Cola (KO) $140B market cap

Merck (MRK) $113B market cap

Verizon (VZ) $96B market cap

Disney (DIS) $60B market cap

3M (MMM) $58B market cap


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