The New Nifty 50: the list of stocks
As the economic storm clouds have darkened, pundits have gone further back in time in search of precedents for our current malaise.
The initial comparisons were with Japan’s lost decade of the 1990s and the US recession of the early 1980s before the oil-influenced slump of the mid-1970s came into view.
Before long it was the Great Depression in their sights, as the slump in stock prices began to resemble the crash of 1929, while the run on US banks of 1907 also got a mention.
But now they have got their teeth into the panic of 1873 which, by all accounts, was worse than any of the above.
Events unfolded with the collapse of European mortgage providers when cheap US imports undermined local economies and wrecked house prices.
The crisis bounced back over the Atlantic to hit ambitious US railroad companies, as bonds crashed in value and interest rates on their bank loans skyrocketed.
Substitute China for the US and the US for Europe and the comparison with the present day is a little spooky.
No doubt the aftershocks of the European financial bubbles of the 18th century, which brought down the French royal family and caused severe problems for the King of England, will soon be held up as the best historic template for our 21st century crisis.
At the current rate of decline, by the end of the year we shall be recalling the manner in which the Black Death triggered a slump in hovel prices in the Middle Ages.
The most comforting conclusion to draw from this trawl through history is the fact all the pain came to an end eventually, regardless of how terminal it seemed at the time. It can also be argued that the recovery period has been shortening quite dramatically over the decades.
Better yet, the stock market tends to anticipate growth when it senses the authorities are restoring stability. There is not much sign of that just yet, but it is a good idea to position yourself for the recovery, even at this stage, by taking a view on quality large cap stocks, often called blue chips after the highest-ranking tokens in poker games.
THE GILDED AGE Time and again, quality companies have maintained, or improved, their position through recession and beyond as weaker competitors get squeezed.
In the 1870s, companies owned by Andrew Carnegie and John D Rockefeller outperformed thanks to the strength of capital behind them. They bought their rivals at cheap prices and roared ahead during the subsequent boom years known as the Gilded Age.
US strategist Jeremy Grantham has crunched data covering the depression period between October 1929 and June 1932 and found growth stocks trading at high earnings multiples ended up outperforming value opportunities on low ones.
“Many cheap companies went bust and the expensive Coca-Colas survived the best,” he says. “Remember, you cannot regress from bankruptcy.” It is a noteworthy conclusion from someone generally regarded as a dedicated value investor.
The Second World War postponed US economic recovery, but as confi dence returned, in the 1950s and 1960s, blue chips such as IBM and Gillette outperformed the fi eld.
Analysts grouped these companies together under the banner of the Nifty Fifty and they became stocks that were safe to buy and hold, ideal for mom and pop to own.
Sadly, so many moms bought them that earnings multiples infl ated to 70 and their market values went pop in the mid-1970s.
They were outpaced in succeeding years, as the equity boom persuaded investors to take more risks and ownership of highergrowth companies was rewarded.
Out of curiosity, I asked Robert Schwob of data provider Style Research to crunch some data to see how modern-day blue chips are performing.
OUTPERFORMANCE He used as his reference point companies with low gearing, strong sales, stable earnings and low debtor and creditor accruals. They include several survivors from the original Nifty Fifty, most of which are performing well, plus global firms like Microsoft, Wal-Mart, Berkshire Hathaway, Unilever and Nokia.
Glory be: Schwob has discovered the familiar cycle is starting up again. Against local indices, quality stocks in the US have outperformed by 11% over 12 months. In the eurozone, their relative gain is 9% and in the UK, it is an impressive 36%.
Their share prices may still be under water but they are far from drowning. At some point, they will be the first to register gains and, incredibly, their earnings multiples have not moved out of line with the market.
It suggests this is the moment for brave investors to start buying quality stocks for the long term, before others crowd on to the scene.
Wealth Bulletin has compiled a list of the fifty mega cap global stocks which have similar low risk characteristics to the Nifty Fifty US-listed stocks of the 1950s and 1960s which consistently outperformed their rivals in a difficult trading environment.
The new Nifty Fifty have in common low levels of debt and sustainable profit margins. Few of them have produced positive returns over the last two years, but taken in common they have started to outperform the rest of the market.
1. WAL-MART STORES
2. CHINA MOBILE LTD
3. MICROSOFT CORP
4. JOHNSON & JOHNSON
5. ROYAL DUTCH SHELL
6. CHEVRON CORPORATION
7. NESTLE SA
8. BERKSHIRE HATHAWAY
9. ROCHE HOLDING LTD.
10. PFIZER INC
11. NOVARTIS
12. GLAXOSMITHKLINE
13. CISCO SYSTEMS INC.
14. ORACLE CORPORATION
15. PUBLIX SUPER MARKETS
16. GENENTECH INC.
17. PEPSICO INC.
18. NTT DOCOMO INC.
19. APPLE INC
20. NIPPON TELEG/TELEPH.
21. MCDONALD'S CORP
22. AMGEN INC
23. QUALCOMM INC
24. NOKIA CORP
25. L'OREAL SA
26. UNITED TECHNOLOGIES
27. WYETH
28. LILLY (ELI) AND CO.
29. SAP AG
30. TAKEDA PHAR CO LTD
31. TESCO PLC
32. 3M COMPANY
33. CANON INC.
34. VIVENDI
35. UNILEVER N.V.
36. BASF SE
37. MEDTRONIC INC.
38. COLGATE-PALMOLIVE CO
39. LOCKHEED MARTIN CORP
40. ABB LTD
41. TELSTRA CORP LTD
42. LVMH MOET-HENNESSY
43. HENNES & MAURITZ AB
44. LOWE'S COMPANIES INC
45. NOVO NORDISK A/S
46. EAST JAPAN RAILWAY
47. MUNCHENER RUCKVER
48. CHINA UNICOM
49. SINGAPORE TELECOM
50. EMERSON
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