U.S. multinational firms offer profit, patriotism

Andrew Leckey

June 16, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Invest abroad while buying American. Stock in U.S multinational companies that have significant overseas profits offers an excellent opportunity for investors to prosper when troubled foreign economies begin to revive.

Consider it a more patriotic way to cash in on overseas investment opportunities than buying the stock of foreign companies or putting money in international stock mutual funds.

Or, you can simply chalk it up as a diversification move to avoid putting all of your eggs in the U.S. financial basket.

U.S. companies with worldwide connections are easy enough to find. A mind-boggling 45 percent of profits earned by companies in the Standard & Poor's 500 is derived from foreign operations these days. "The U.S. multinational companies that I like have strong existing leadership positions abroad and don't have to worry about incurring added investment costs to establish markets there," says Eric Miller, chief investment strategist for Donaldson, Lufkin & Jenrette.

"Timing is the key with these firms, because their overseas operations are . . . a drain on overall earnings and better earnings won't be derived from them until next year."

For example, AMP Inc., a producer of electronic connection devices that obtains 59 percent of sales from abroad, should enjoy three solid years of strong earnings once international economies improve, Miller predicts.

Other U.S. multinational companies favored by Miller include Avon Products in cosmetics and toiletries and Singer Co. in sewing goods, as well as household and personal-care giants Colgate-Palmolive and Procter & Gamble.

The question of when foreign economies will actually become vibrant again is a difficult one. After all, regions come around at their own speed and some probably will ail considerably longer than others.

"There's a cyclical investment opportunity with U.S. multinationals in Europe as that region recovers, though a meaningful recovery is probably not likely until 1994 or 1995," says Marshall Acuff, portfolio strategist for Smith Barney, Harris Upham & Co.

"I believe the greater growth opportunities currently lie in Asia and Latin America, especially for U.S. companies in power generation, pollution control, energy production and infrastructure improvement."

Specifically, a company like Caterpillar Inc., the earth-moving equipment manufacturer with 55 percent of its sales from abroad, should benefit when a number of countries such as Brazil begin building thousands of miles of much-needed motorways, Acuff says.

General Electric and Emerson Electric, plus oil field services companies Halliburton Co. and Dresser Industries, are other Acuff picks.

Don't simply get swept away by the increasing swing toward such U.S. multinationals, however. Fundamentals still count the most.

"When diversifying away from the American economy, the most important criteria in choosing any company remains that company's specific prospects, rather than simply playing a trend," warns Thomas McIntyre, publisher of Dessauer's Journal of Financial Markets and president of Dessauer Asset Management in Orleans, Mass.

Apple Computer, a world-class company with 45 percent of sales from abroad, has seen its revenues in Japan hit $500 million and should continue to benefit from the weak relationship of the U.S. dollar vs. the Japanese yen, McIntyre says.

Besides that stock, McIntyre favorites include Boeing Co., Comshare Inc. in time-sharing computer services, and Micron Technology in microcomputer parts.

Find out the breakdown of worldwide profits of any U.S. multinational before investing, and decide whether the countries the company has targeted for sales coincide with your personal opinion of where the best opportunities lie in the global community. Take into account the inherent complexity of investing in these far-flung companies.

"Currency risk is always a consideration when you buy a U.S. multinational," says Arnold Kaufman, editor of the Outlook investment letter published by Standard & Poor's Corp. "You have to assume the firm's financial officer is astute in dealing with currency risk and is hedging to get some protection."

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