Global Consumer Franchise Stocks

By Author: RoryGillen
Total Articles: 1
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The 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%. The third point is that the US market is substantially cheaper today, trading on 14.3 times earnings.

Looking back over a number of cycles 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%. Today, however, the US government 10-year bond yields a paltry 2.9%. The earnings yield available from these stocks is more than twice the bond yield.

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.

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 1999but not anymore! We have analysis on all the stocks involved in the Global Consumer Franchise, on request.

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. Get the Global Franchise & Analysis e-book free from www.investrcentre.com