THE AMERICAN CENTURY is ending with a corporate bang: Two-thirds of the world's top 50 companies are based in the United States. Significantly, they include the eight biggest high-technology companies.
Douglas Cliggott, U.S. strategist at J.P. Morgan Securities in New York, compiles a list of the world's biggest companies by market capitalization, which Morgan calls Global Market Movers. He said that a comparable list three or four years ago would have included many more Japanese and European companies.
'It is remarkable how many of the world's top companies now are American,' Mr. Cliggott said. 'It shows just how well the U.S. stock market has done over the past few years and just how much the country dominates the high-tech industry.'
But that does not worry the many investors who remain bullish on the United States, its high-cap stocks and its high-tech sector in particular. Eight of the top 10 Global Market Movers are American and five are primarily engaged in high technology.
Peter Canelo, U.S. strategist at Morgan Stanley Dean Witter & Co. in New York was among the sanguine. 'These companies are going to become even more prosperous over the next five years, once we are past the Year 2000 problem,' he said. 'There is enormous demand still to come in the United States and even more in Europe and Japan where the economies are now recovering and the companies realizing that they have to invest in our technology to catch up.'
At the same time, the high-tech industry is rapidly consolidating, to the benefit of the biggest players. Analysts cheered the Lucent Technologies Inc. announcement on Tuesday that it would buy International Network Services Inc. for $3.7 billion. The move will enable Lucent to expand beyond its core manufacturing businesses into support and consulting services, they said.
Cisco Systems Inc., which competes with Lucent in networking, had been an early investor in International Network.
Lucent, Cisco and International Business Machines Corp. are the three high-tech Global Market Movers that also rate J.P. Morgan's top 25 U.S. equity picks. The other two giants, Microsoft Corp. and Intel Corp., are considered expensive at their current prices.
Apart from high-tech, the consumer staple manufacturer Procter & Gamble Co. and the conglomerate Tyco International Ltd. are the J.P. Morgan strategists' two top picks among the big -cap stocks. They also cited the U.S.-listed shares of Royal Dutch Petroleum Co.
Bigger does not necessarily mean better from an investment point of view. Shares in 31 of the 50 Global Market Movers have outperformed in dollar terms the S&P 500 index so far this year and 28 have done so in the past 12 months. But 11 have produced losses. The winners and losers appear to be determined more by sector than by domicile or size.
Just three Japanese companies make the top 50 list: Nippon Telegraph & Telephone Corp., NTT Mobile Communications Network Inc. and Toyota Motor Corp. But they are among the best stock market performers this year.
Shares in NTT Mobile, known as NTT DoCoMo, are up 86 percent in yen terms, and 82 percent in dollars.
The company's status as the only nationwide domestic cellular carrier has enabled it to gobble up the lion's share of Japan's growing mobile-phone pie. But some analysts warned that a new mobile-phone network due to start in 2001 will boost the earnings of its competitors.
NTT DoCoMo's parent, Nippon Telegraph & Telephone, is up 42 percent in dollar terms so far this year.
Toyota also performed well earlier this year but has slid in recent weeks as investors voiced concerns that the yen would climb against the dollar, raising the price of Japanese exports. Shares were priced at 3,740 yen in trading Friday, up 27 percent for the year.
The European Union's core does not fare much better than Japan in terms of representation: It is home to just four of the world's biggest companies, including the newly merged DaimlerChrysler AG, and none of the top 20. Royal Dutch/Shell Group ranks 21st, with Deutsche Telekom AG 24th. France Telecom SA, in 50th place, has a market capitalization just one sixth that of the top-ranked Microsoft Corp.
Of the nine other European companies considered global market movers, five are British and three Swiss. The remaining company, Nokia Oy, is the pride of Finland.
Apart from the Japanese companies, the Hong Kong-based HSBC Holdings PLC and Tyco are the only others domiciled outside the United States, and Tyco essentially is an American company despite its Bermuda base.
Europe is also home to two of the three worst-performing Global Market Movers so far this year. Shares in the drug makers Novartis AG of Switzerland and Glaxo Wellcome PLC of Britain are down about 27 percent so far this year.
Analysts are particularly bearish on Glaxo. In London, Salomon Smith Barney Inc. cut its recommendation on the stock this week to neutral from outperform, saying there was little prospect of growth for 12 months, until some key new products are expected to come on to the market. In the interim, marketing and research spending will rise.
But the four other drug makers on the top 50 list have also had a tough time this year. Shares in Merck & Co. and Schering-Plough Corp. have slid 14 and 9 percent, respectively, while those in Pfizer Inc. have plunged 16 percent. Shares in Bristol-Myers Squibb Co. gained 17 percent last year but have since backtracked 3 percent. All four are U.S.-based.
Mr. Canelo blamed the drug makers' ailments on political uncertainty in the enormous U.S. market.
'Health care is under attack in the United States for the first time since Hillary tried to shake up the system,' he said, referring to Hillary Rodham Clinton's efforts at health reform in the early 1990s. The $321 billion-a-year U.S. health-insurance industry is waiting for a Senate vote on proposed reforms, which would enable patients and doctors to increase their control over coverage decisions by insurers.
'No one will benefit from restraints,' Mr. Canelo said. 'But I think the news will be good when the Senate returns from recess. We should see drug-maker shares climb pretty quickly after that.'
Philip Morris Cos. has fared even worse than the drug makers this year. Its shares are down more than 30 percent, making it the poorest-performing Global Market Mover. Interestingly, however, the tobacco-and-food conglomerate is one of the four top 50 companies to also feature among J.P. Morgan's Global 50 Fund's portfolio holdings. The others are: MCI WorldCom Inc., Bristol-Myers Squibb Co. and Bank America Corp. All four are based in the United States.
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THAT BRINGS US back to the U.S. high-tech sector, by far the best bet for investors outside the Japanese market this year. Hewlett-Packard Co. shares are up 56 percent while those in IBM and Cisco have risen 56 percent and 36 percent, respectively. Prices are sky-high but investors are still piling in.
Megan Graham-Hackett, a Standard & Poor's Corp. analyst, reiterated her buy recommendation on IBM this week after it reported earnings above market estimates. IBM is priced at 30 times her earnings projection for 2000, which makes it undervalued for such a strong play on growth in the e-commerce sector, she said in a note to clients.
There are still good reasons to be bullish about the United States, notably its dominance of the high-tech sector. But few professional investors would argue that diversification is a bad idea, particularly as the European and Japanese economies appear to be sparking to life at last. Investors in big-cap stocks who are worried that they are being inexorably drawn to the country despite efforts to invest worldwide could consider the J.P. Morgan Global 50 Fund.
'People should be thinking about diversification outside the United States right now,' said Nick Sargen, chief investment strategist for private clients at J.P. Morgan. 'There is very limited upside risk in this market. Instead, there is a real risk of correction because the stock market has driven valuations to very expensive levels and there is so much concern that the Fed will tighten. The Global 50 Fund looks for the best relative value in the global marketplace.'
The fund requires a minimum investment of $2,500 from Americans and $50,000 from those based in other countries. It was launched a year ago and currently has about $85 million under management. About 40 percent of its assets are invested in Europe, 22 percent in the United States, 20 percent in Japan, 12 percent in the rest of Asia and Australia and about 6 percent in Latin America.
above from IHT
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