There are lots of good reasons to be wary about investing in the US just now.
The stock market looks pricey, despite recent falls. And while there are signs that politicians might be ready to talk about the debt ceiling, there are still lots of things that could go wrong.
So as I said last week, I’d have no interest in buying a US index tracker fund any time soon.
However, the US remains by far the world’s biggest, and still one of its most dynamic economies. And as I also said last week, I’m still keen to get exposure to the US dollar.
The good news is that even in a pricey market, it’s possible to find some shares that do look attractive. So here are four big US names I think you should have in your portfolio, or at least on your watchlist…
Coke’s formidable investment moat
Coca Cola (NYSE: KO) has a fantastic investment ‘moat.’ In other words, it would be a huge struggle for a new cola supplier to seize market share.
This isn’t just down to the strength of the Coke brand. The company also has a very strong distribution network around the world.
Now you might think that 3% isn’t that great a yield. But you have to remember that Coca-Cola has been using a fair chunk of its cash to invest heavily in emerging markets, as well as buying back shares.
In any case, when it comes to dividends, there’s a real cultural difference between the US and UK. In the States, a decent dividend is often seen as a sign of weakness, an admission that the company can’t find any new prospects for growth.
That cultural difference means that dividends tend to be lower across the pond, so I confess I’m really quite excited to find Coke on a 3% yield.
If you’re still not convinced by the buy case here, remember that Coca-Cola is one of Warren Buffett’s very favourite investments. His Berkshire Hathaway investment vehicle owns 9% of Coke.
How to cash in on Obamacare
My second pick is well placed to benefit from the ‘Obamacare’ health reforms that are now being implemented in the US.
The reforms should mean that more Americans will be covered by health insurance. But at the same time, many US businesses will be hit by higher costs.
I’m not going to comment on whether or not Obamacare is a good idea. But it’s clear that the health landscape is changing in the US, and that presents opportunities for investors.
As more people are covered by health insurance, there should be greater demand for prescription drugs, and I also expect there will be continued growth in primary health care clinics. These clinics treat relatively minor conditions and are often attached to phamarcies.
Both of these trends are good news for CVS Caremark (NYSE: CVS), which is one of the largest drug store chains in the US. It operates over 500 ‘MinuteClinics’ as well as more than 7,000 pharmacies.
I like the fact that revenue rose 15% last year while the dividend was boosted by 38%. And you can get all this growth at a multiple of just 13 times next year’s earnings.
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America’s huge appetite for eating out is still growing
Middleby (Nasdaq: MIDD) makes ovens and other kitchen equipment for restaurants. Eating out is still a growing market in the US and Middleby should benefit as this continues.
Middleby has itself grown a lot over the last decade, but I should flag up that a lot of that growth has been due to acquisitions.
I’m always a little wary when I see a company that has grown via takeovers. Integrating new acquisitions can be difficult, and there’s always the worry that glitzy takeovers may be hiding underlying problems with the core business.
However, in this case, I’m not too worried. Middleby hasn’t had any takeover-related problems so far, and it’s now pushing into the consumer kitchen market, which looks a good move at a time when the US housing market is also recovering. So there‘s plenty of growth to go for.
One of the hottest sectors in the US just now – biotech
I’ve been investing in biotech shares for more than a decade now. I’ll confess right now that some of my investments in this sphere have been disastrous.
But all of my failures had two themes in common – the companies were all loss-making when I bought them, and they were all based in the UK.
The US biotech market is more mature. It’s much easier to find companies that are working on promising drugs for the future, but are also making money right now.
I’m particularly drawn to Gilead Sciences (Nasdaq: Gild). The company’s roots are in developing treatments for HIV, hepatitis B, or influenza. But it’s now broadened out into other areas including pulmonary diseases and cancer.
Gilead has been working on a new cancer drug called idelalisib, and announced encouraging trial results this week. The drug could get final approval next year and sales could eventually reach $1bn to $2bn a year.
Gilead now trades on a p/e ratio of just over 30. But if you buy, you’re getting exposure to a valuable portfolio of HIV-related drugs plus some exciting development prospects. Compared to your typical one-shot UK biotech lottery ticket stock, it’s a far more sensible way to play this industry.
By the way, if the idea of Gilead appeals to you, it’s among the stocks my colleague Mike Tubbs has chosen for his Research Investments newsletter. Mike focuses on technology-driven stocks, and his portfolio has had an excellent run – you can read more about Mike’s methods here.
As I’ve said already, all four of these companies look attractive at current prices, so I’d be happy to buy them now (full disclosure: I already own shares in Middleby). Alternatively, you could put them on your watch list in the hope that the US debt ceiling and shutdown crisis drags on for longer, in which case you might be able to get them at even cheaper prices.
• Dr Mike Tubbs’ Research Investments is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares; never risk more than you can afford to lose. Past performance is not a reliable indicator of future results. Please seek independent financial advice if necessary. Customer Services: 020 7633 3600.
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