As America celebrates its independence, we might also celebrate these five great American companies. After dominating their rivals in the United States, these five companies are making their mark overseas now as well. I'm talking about Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Starbucks (NASDAQ: SBUX), Yum! Brands (NYSE: YUM) and Apple (NASDAQ: AAPL). While these companies are still conquering the world, their shares have come under pressure of late on global economic concerns. We review each individual situation for you to pick which of these legendary stocks to buy, sell or hold now.
Wal-Mart is our nation's largest employer and our most important retailer by far. The company is the product of Sam Walton and is a testament to the American dream. Its stock chart shows what is possible for entrepreneurs and investors alike.
Walton founded the company in 1962 in Rogers, Arkansas, and incorporated it in 1969. The company's shares began trading on the OTC in 1970 and if you bought them back then, well your family is doing okay. Today Wal-Mart operates 10,130 stores in 27 countries. In fiscal 2012, Wal-Mart had revenues of approximately $444 billion, while employing 2.2 million people globally.
Walton intended to make things cheaper for Americans in order to help them raise their standard of living. Truth be told, the company and retail chains like it put mom and pop shops out of business, but in the process, created a more efficient operating structure that benefits American consumers. In other words, they added value, to which long-time shareholders can attest. I recently suggested the discounter's shares still made sense in today's tightening consumer spending environment, which you can see in my article entitled, 5 Stocks to Own if Consumers Check Out.
McDonald's is another great American success story. In 1954, a guy ironically named Ray Kroc discovered a small burger shop in California and started what became McDonald's. The chain is now one of the world's leading food service retailers with more than 33,000 restaurants in 119 countries. The company serves food to 68 million people a day. McDonald's share performance offers the clearest illustration of its success.
MCD has experienced a pull back of late, as pressure built following a poor same-store sales result due to European drag. But some are looking for the shares to find support soon. The company has matured in the United States, and is finding creative ways to increase foot traffic and freshen up its product offerings. Meanwhile, a world of opportunity remains open to the seasoned American champion. The stock trades at 15.1X my estimate for the next 12 months' EPS ($5.86). That compares fine enough with MCD's growth of the last five years, but growth is seen moderating to 10% or so, according to analysts. Thus, the stock is probably not undervalued today, and I think could manage 10% appreciation over the coming year, barring more impact from Europe. Add its 3.2% dividend yield to that, and a case can be made that MCD is a stock still worth holding.
Another impressive long-term chart for another American sweetheart, Starbucks , also shows reason for concern. That's because SBUX ran into trouble when the U.S. economy was stressed. More recently, the company saw some impact from ailing Europe, leading us to warn that its shares could be stressed again. SBUX is down 9.6% since I wrote, Why I'm Not Buying Starbucks on May 1st 2012. Its latest trouble is still but a speck of tarnish on the stock's polished long-term performance record.
Founded in Seattle in 1971, the company now operates over 15,000 coffee shops in 50 countries. Its brand is truly known the world over, and is one of the most important in America. Starbucks stores seem to be everywhere, and in truth, they are. That's a testament to the team's excellent execution developing a new concept and effectively scaling it nationally and internationally.
While the stock has not been as exciting an investment the past few months as it had been through its long-term history, it certainly could be a buy again in the future. The stock now trades at 22.6X the $2.30 analysts' consensus EPS estimate for FY 13 (Sep.), which has incidentally been ratcheted lower two cents over the last 30 days. The estimate forecasts 25% EPS growth over the analysts' view for FY 2012, giving the stock a PEG ratio on those figures of 0.9. Given analysts' 19.6% 5-year growth view, the PEG ratio would measure 1.15. That's not too pricey for the kind of growth we are talking about here, but I have concern about the economic deterioration being reported in Europe and the slowing of Asian economies. That's not to mention the latest soft consumer confidence and spending data reported in the U.S. Still, I would not recommend the sale of SBUX now, but neither would I recommend the security for new purchase.
Yum! Brands is another one of those grand American companies taking over the world. This global operator of KFC, Taco Bell and Pizza Hut fast food restaurants is making major inroads in China and India today. The largest restaurant operator in the world, Yum! Brands has nearly 38,000 locations in more than 120 countries and territories. Each of its brands leads the category it operates within, including chicken, pizza and Mexican-style food chains. YUM's stock chart reflects that leadership.
Still, YUM like many of the other companies mentioned herein, has come under pressure of late, falling 15% since marking its 52-week high earlier this spring. The problem is the same mentioned for the other legends herein, deteriorating Europe and slowing Chinese economic growth. Add to that now, sliding American consumer confidence, and it would seem there's a serious question being asked about these stocks today. It'll be answered soon too, as they report earnings over the days and weeks ahead. YUM is scheduled to report earnings on July 9th.
The stock has been showing fresh softness over the days heading into its report, so there is real concern it could disappoint with its results or outlook next week. As for valuation, well it has made some room now, so that if its results are solid, YUM could enjoy a nice ride higher. The stock trades at 17.8X my EPS estimate of $3.55 for the next 12 months, which is simply the average of its fiscal 2012 and fiscal 2013 (Dec.) analyst consensus estimates. The P/E here compares richly to the 14.1% EPS growth seen by analysts for 2013, with a PEG ratio of 1.26. Against the consensus 5-year growth outlook of 13.8%, the PEG sits at 1.28. My feel is that it's just a bit rich for the stock today. I think the company's results might prove out, but management might speak of the economic situation overseas as well. So, once again, I have a neutral view for these shares.
Apple Incorporated's revival of the last decade is plainly evident in its long-term chart. The company has been around for quite a while, but it was its reinvention at the hands of legendary leader Steve Jobs that drove its revival.
Apple is now the largest company in the world by market capitalization ($560 billion), leaving Exxon Mobil (NYSE: XOM) in its dust at $403 billion. Apple's revolution, so to speak, with its roll-out of the iPod, iPhone and iPad drove a run like no other. Apple has like its peers herein conquered the world, but this time by its surrender. People demand Apple products the world over today. With sales of $108 billion and net income of $25.9 billion in fiscal 2011 (September), Apple is the most admired company in the world today.
But you know what they say: it gets lonely at the top. All the companies that Apple ate for lunch on its way to the top want its head now. Though, their success at hunting down Apple will first require them to get back on their feet. I'm speaking of Research in Motion (NASDAQ: RIMM), Nokia (NYSE: NOK), Sony (NYSE: SNE) and now Dell (NASDAQ: DELL) and Microsoft (NASDAQ: MSFT). And Apple has some admirers who would like to be like them, with Microsoft and Google (NASDAQ: GOOG) leading that charge today.
Yet, with all that is going against it, AAPL is the stock I like most today within this group of world conquerors. I just authored an article on June 30th answering the question, "Should I Buy Apple (Nasdaq: AAPL)?" that you can see at my blog. The stock is up 2.6% since that recommendation, and I think it has more ground to take.
The question haunting Apple today is growth. Can Apple keep growing despite the law of numbers and its size which dictate that its growth should slow? This is the reason AAPL shares trade today at a P/E ratio of 11X the analysts' consensus FY 13 (Sept.) EPS estimate of $54.23, despite estimated growth next year of 15.8%. Analysts project 5-year growth of 21.8% for Apple's EPS, giving it a P/E-to-growth ratio of 0.5. In my view, that is unexplainable except by market doubt about the company's ability to grow from here. I for one believe it can, and I'll explain why in a near-term focused piece on Apple.
There you have it, America's world conquerors. For each, today's challenges are again raising questions about their shares. In the end, it seems certain these steadfast survivors will push through, but for now, the near-term path of each company's stock could vary. Still, when you put your kids to sleep at night, I think you can reinforce their confidence in the red, white and blue by pointing to the achievements of these companies too.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.