Looking to America

Equities Mentioned in this Video:

General Electric (GE)
DuPont (DD)
Pfizer (PFE) 

Market Performance (September 10 - 14)

FTSE 100: +2.08%
FTSE 250: +2.61%
FTSE All Share: +2.14%
FTSE Small-Cap: +1.34%
FTSE AIM 100: +2.33%
FTSE Fledgling: +1.97%

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Video Transcript:

Alanna Petroff: If you are sick of the economic stagnation that you’re seeing in the UK and Europe, you might want to look over to the US, which is a bit of a bright spot right now. They are seeing some economic growth, not fantastic, but a decent bit of growth. Also the US housing market is finally picking up. So, joining me now to discuss the US market and investing in the US market from Britain is Rodney Hobson. He is a Morningstar columnist here.

Rodney, thanks for joining me.

Rodney Hobson: My pleasure.

Petroff: So let’s go over the US market. You’re looking at it now, but you don't have investments there quite yet. Why are you interested?

Hobson: That's correct. I always advise investors ‘go with what you are familiar with’ and I'm far more familiar with the UK market than I am with the American market. But what is interesting me now is, as you mentioned, United States is showing growth: 1.7% in the latest quarter, we’d die for that over here. So there are great prospects there that perhaps we're not going to see in Europe, which looks to be heading back into stagnation. So you’ve got the chance to spread your geographic risk and American shares now look to me in many ways more appetising than they have done for quite a long time.

Petroff: Okay. So, let’s discuss some of the pros and cons of investing in the US market from here.

Hobson: You spread your risk, which I think is always a good idea. Best not to be too dependent on one geographical area. America also offers wider scope, far more companies to invest in, some sectors are under-represented in London. For example, technology is the most obvious one. Car manufacturing is something that has disappeared here; it's not a sector incidentally that I am looking at, but it's an example of how you can invest in sectors in America that are not available to you here. So that to me is the one big advantage.

Petroff: Okay. What about the cons of investing in the US market?

Hobson: Two major problems. The first one, the obvious one, is the political problem. We have this log-jam in America. President of one party and half of Congress is in the hands of the other party, neither will budge over the economic issues, over taxation, over government spending. That is not going to be settled now until November. It could go on beyond November, but I think not, because whoever is elected President will be in a much stronger position than Obama is today, and I think the log-jam will then get broken.

Petroff: So political risk in the US and then also currency risk.

Hobson: Currency risk indeed, quite right. This is the second major problem that if the American dollar rises in value, then the value of your investments goes up as well, twice over as it were. Whereas if the American dollar falls against the pound then the value of your investments is all the less when you translate back into pounds. It’s something to bear in mind. I don't think is a big problem. I wouldn't worry too much about it. Just bear in mind.

Petroff: So now the research that you’re doing, you’re looking at the States, you’re looking at specific companies to invest in. Let’s go over the three that you’re interested in, that's: General Electric (GE), DuPont (DD), and Pfizer (PFE). So let's talk about GE a little bit, why do you like that?

Hobson: I look at American stocks in the same way as I look at British stocks. I'm looking for the boring companies that go on making profits and selling their goods and do well, never spectacularly, but they do well. You don't come much more boring than General Electric, an original member of the Dow Jones Industrial Average. It is still there today 100 years later. It is doing well. It is not growing its sales, but it is growing its profits and is paying a decent yield. It supplies to quite a range of different industries. So it's got a good spread there. I think this company will continue doing well. The shares are higher than they were a year ago, but they have tailed off over the summer, so I think this could be a good time to be looking to getting in.

Petroff: DuPont. Why DuPont?

Hobson: DuPont, a chemical company. Similar characteristics to General Electric. Sales have been pretty steady. They have not fallen. Net profits are up. It's got a wide range of customers in different industrial sectors. So it's pretty stable in that respect. It's got good cash flow, a decent yield. Shares are higher, but have tailed off again, so it's possibly a good chance to get in at this stage.

Petroff: Why Pfizer? I mean, why would you look at Pfizer over other pharmaceuticals? We have lots of pharmaceuticals here in Europe as well.

Hobson: Yes, there are pharmaceutical companies, and I would say, have a pharmaceutical company in your portfolio. It doesn't have to be Pfizer. It's one that to me stands out in America for exactly the same reasons: very good yield, even better than the other two. Sales are rising. Net income is rising. We're going to be paying more for pharmaceuticals, I'm afraid. You can't avoid it. As people get older, as the population across the world ages, then illnesses increase. Pharmaceuticals are certainly here to stay. This is a good solid company and a good solid sector.

Petroff: Okay. Great. Thank you very much for joining me.

Hobson: Thank you.

Petroff: That was Rodney Hobson, and I'm Alanna Petroff, thanks for watching on Morningstar.