When it comes right down to it, nothing is more American than the desire to achieve and to profit. In fact, buying great American companies has been a winning strategy of mine over the years. The key is to buy the right ones at the right time.
With that in mind, I thought I would take a look at some great American companies and see how they stack up in today's market.
Home Depot (HD) is one of the truly great American success stories. The company started in 1978 with two stores in Atlanta and has been the fastest-growing retailer in U.S. history. Today the company has 2,257 stores in the U.S., Mexico and Canada. It's the world's largest home improvement retailer -- and with the real estate markets starting to improve, Home Depot is in the sweet spot for future growth.
As American's situation continues to improve, they will feel more comfortable spending money to fix up their houses and improve their yards. And Home Depot's dominance of the marketplace means the company will see a lot of this spending. Portfolio Grader, my proprietary stock grading tool, has ranked the stock a "Buy" all year -- this month the stock was upgraded to an "A" and is a "Strong Buy."
Kellogg (NSYE:K) was founded in 1906 by W.K. Kellogg and his brother Dr. John Kellogg. The company used aggressive advertising, giveaways and premiums to rapidly gain market share in the domestic market. Eventually the company expanded internationally; today it is one the largest food companies in the world, with a large portfolio of cereals, snacks and other food items.
In 2012 Kellogg purchased the Pringles lineup of snacks from Procter & Gamble (PG), making it the world's second-largest snack food company. Kellogg's already strong fundamentals have been improving with the economy and the shares were upgraded back in April -- this stock is also currently a "Strong Buy."
The unfortunate truth is that not all great companies make great investments. There are times during the market and economic cycle where conditions don't favor even the very best of companies. When these great companies are out of step with the stock market, investors should stand on the sidelines.
Here are two giants of U.S. industry whose stocks should be sold right now:
IBM (IBM) has dominated the computer and IT space for decades, but right now those industries are growing at a snail's pace. IBM is one of the most innovative companies in the world, with offices in 170 countries around the globe, but the pace of business is still too slow for substantial fundamental improvement.
This great company will be a great stock again at some point, but for now, investors would be wise to avoid the shares. The stock was downgraded back in May to a "D" rating, and IBM shares have retained their "sell" recommendation since then.
So it goes with Coca-Cola (KO). The distinctive outline of a Coca-Cola bottle defines America in many foreign countries, and it is the dominant soft drink company in the world. However, sales growth will be in the low single digits for the next few years as business conditions around the world remain soft.
Right now, not enough people want to buy the world a Coke for the fundamentals to improve substantially, so expect the stock to continue to lag. KO was recently downgraded to a "D," and thus should be avoided or sold by growth-oriented investors.
The U.S. has seen some of the most revolutionary and important companies from inside its borders, and we have a reputation for the type of innovation and hard work that builds great companies. But in spite of their greatness, they are all subject to the cycles and whims of the economy. The fundamentals of these great companies will be in the sweet spot for investors at times and at others they simply will not be positioned for profits.
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