U.S. stocks' time finally may have come.
Investors, encouraged by a brightening economy, are pouring money into domestic shares and pulling money from emerging markets. With the S&P 500 Index rising at twice the average monthly pace of last year, the smart money is betting on out-of-favour large-cap stocks.
U.S. equity funds attracted $20.6-billion (U.S.) in the five weeks through Feb. 2 as emerging-market equity funds posted their third straight week of outflows in early February, according to EPFR Global. Funds that invest in Europe and Japan have also seen inflows in recent weeks, a trend that continued through Feb. 9.
The fund-tracking firm said Friday that emerging-market funds have had "their worst three-week run in three years, as questions about the economic, political and policy implications of higher inflation continue to dog this asset class."
That money is going to some Japanese and European stock funds, but the bulk of it is going to be invested in blue-chip U.S. stocks, as investors seek to reduce risk while having an opportunity for share-price gains.
For example, fund-consulting firm Strategic Insight reported that investors deposited a net $21.4-billion to U.S. stock funds in January, the biggest monthly increase since a net inflow of $23-billion in February 2004. The last time there had been positive inflows to domestic stock funds was last April.
The S&P 500 is up 2.4 per cent this year after gaining 15 per cent in 2010. But that may be just an inkling of what's to come because fund managers must put all that new money to work in U.S. companies.
So here are five U.S.-based, but international, companies still growing at a fast enough pace to potentially attract new investors and yet carry relatively low valuations. They could benefit if investors are cautious and come back to the market with the view that they prefer quality and slow growth to rocketing returns.:
3M , an international giant with a market value of $65-billion, is probably best known by the general public for its Scotch tape and Post-It notes. But, for investors, it represents a virtual one-stop shopping spree for those seeking a diversified investment portfolio. That's because its product line includes everything from electronics and health care to chemical adhesives and office and security products.
Its annual revenue is $27-billion and it had earnings of $5.75 per share in 2010.
The St. Paul, Minn.-based company gets a four-out-five-star rating from Morningstar for its steady-eddy financial performance over the years.
A Thomson Reuters poll of analysts finds seven "strong buy" ratings, five "buy," four "hold," and two "reduce" ratings.
The same group gives shares a 12-month price target of $102, a 12 per cent premium to the current price. It has a 2.4 per cent dividend yield.
Its share-price performance has been poor. Shares fell 7 per cent in 2010 and are up only 1.9 per cent this year. In an obvious move to boost prices, on Feb. 9 the company raised its quarterly dividend by 5 per cent to 55 cents per share and 3M's board approved a $7-billion stock buyback program.
State Street loves 3M, holding a 5.4 per cent stake in it, about double that of the next-largest institutional investor and little changed in percentage terms over the past two years.
Cummins , the diesel engine maker, is benefiting from booming worldwide demand for its equipment used in trucks, buses and in industrial machinery. The Columbus, Ind.-based company gets half of its sales from outside the U.S., where it is recognized as a high-quality brand.
It gets a "five-star, strong buy" rating from Standard & Poor's, the rating firm's highest such rating, based in part on its projected revenue increase of 22 per cent for 2011, which comes on top of a similar increase in 2010.
It finished 2010 with a record fourth quarter, seeing a 22 per cent increase in revenue for the period and $1.85 per share, resulting in annual earnings of $5.28 per share, more than double that of 2009.
A Standard & Poor's analyst writes that "North American truck engine sales should pick up in 2011 on pent-up demand and as customers become more comfortable with new engines being sold to meet more stringent (government) emissions regulations," as well as due to companies' need to replace their aging truck fleets after putting off capital purchases during the recession.
He also wrote that the booming economies' of India, China and Brazil, and infrastructure projects in those regions will keep demand growing.
S&P gives the company a $140, 12-month price target, about a 28 per cent premium to its current price. Cummins shares are up 1 per cent this year and 115 per cent over the past year. Diversified industrials stocks, Cummins' category, have gained 4.5 per cent this year.
To sweeten the pot for investors, on Feb. 8 Cummins announced a $1-billion share buyback. It has a market capitalization of $22-billion.
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