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Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Why Global Stocks Make Sense by Sandra Ward

Barron's interviews private investor David Richards, who believes the recent market selloff is not serious. Richards, who managed funds for Primecap Management and Capital Research & Management Emerging, says we can expect several 'mini-panics' over the coming years, but notes that capitalism is bringing almost four billion new consumers into the global economy -- which should stimulate a 20 to 40% growth boom similar to the Industrial Revolution. Instantaneous communication means businesses can extend their global reach like never before. U.S. housing and lending issues are too small to have a lasting effect outside of their specific sectors. His plays on the global boom:

  • General Electric (NYSE:GE) -- he likes CEO Jeffrey Immelt. At 16x earnings, with global participation in aircraft, trains, power and finance, it is very low risk.
  • Coca-Cola (NYSE:KO), Johnson & Johnson (NYSE:JNJ) and Eli Lilly (NYSE:LLY) -- are selling at 15x earnings, not the 25-30x they deserve, because they've been abandoned by mutual funds in favor of hedge funds and private equity. Private equity players like Blackstone Group (NYSE:BX) have become conglomerates, and will be forced to pay top dollar to lure the managers they need to run the companies they're buying.
  • ConocoPhillips (NYSE:COP) and BP plc (NYSE:BP) -- at 5-10% growth over the last few years, they have severely lagged peers like ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) who are up 50--60%.
Richards doesn't like: Domestic retailers, financial companies, or anything connected with housing.

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