Becoming a multinational corporation gives the company a chance to grow and profit on a completely different level and could potentially make that corporation a household name worldwide. Not only does this create many opportunities for the company, it allows investors a chance to diversify their portfolios and enter the world of international investing. This project allowed me to learn more about international investing and competition in the global market. Two foreign stocks that trade on U.S. stock exchanges and two U.S.-based multinational corporations were included in the portfolio I created. Anheuser-Busch (BUD), a brewing company founded in 1366, produces, markets, and distributes beer, as well as non-alcoholic beverages. It boasts a portfolio of approximately 200 beer brands. The company’s international brands include Budweiser, Stella Artois, Corona, Beck’s, Leffe and Hoegaarden, while its local brands primarily consist of Bud Light, Skol, Brahma, Antarctica, Victoria, Modelo Especial, Michelob Ultra, Harbin, Sedrin, and Jupiler. The company has operations in 24 countries. Anheuser-Busch is a foreign stock, as it is headquartered in Belgium. National Grid (NGG) is also a foreign stock; this company is headquartered in the United Kingdom. National Grid conducts and allocates electricity and gas to industrial, residential, and commercial consumers. The company operates high voltage electricity and gas transmission networks in Great Britain, a gas distribution system in the United Kingdom, as well as controlled gas distribution and electricity transmission networks in New York and New England. National Grid was founded in 1990. 3M Company (MMM) is a U.S.-based corporation that operates as a diversified technology company worldwide. 3M Company has many segments; it serves automotive, retail, electronics and energy, food and beverage, appliance, hospitals and pharmaceuticals, paper and printing, packaging, construction, home improvement, and other markets. The company was founded in 1902 and is headquartered in Minnesota. Exxon Mobil Corporation (XOM) was founded in 1870 and is headquartered in Texas. This corporation searches and produces for crude oil and natural gas. Exxon also manufactures and markets petrochemicals and transports and sells natural gas, petroleum products, and crude oil. It operates in all continents except Antarctica.
After selecting the four stocks for my portfolio, I gathered the historical data over two years and calculated the daily returns for all four stocks, as well as the average compounded daily return, the average compounded annual return, and my portfolio’s return. This data is located in the attached Excel spreadsheet and in the table listed below. Reasons for each stock’s return are also listed. Name of Firm | Average comp annual return | Reason(s) | 1. Anheuser-Busch (BUD) | 28.75% | Environment friendly & highly profitable | 2. National Grid (NGG) | 22.60% | Operational & Dividend security | 3. 3M Company (MMM) | 30.21% | Currently trading at a new lifetime high | 4. Exxon Mobil (XOM) | 15.92% | Size & potential growth opportunities | Portfolio (average) | 24.37% | |
In the news, Anheuser-Busch recently announced its commitment to a new global environmental goal to reduce the company’s carbon emissions in logistics operations by the end of 2017. In support of the new goal, the company promised to implement several innovative measures and expand proven practices across its global operations. Another possible reason for Anheuser-Busch’s 28.75% return is the company is considered the beer industry leader. In 2013, Anheuser-Busch recognized 43.2 billion USD revenue. The company’s desire to be “the Best Beer Company Bringing People Together For a Better World” truly shows through all of their environmental efforts. Headlines suggest that two of National Grid’s strengths are the reason for positive returns for the company. In the United Kingdom, National Grid owns the nation’s gas and electricity transmission systems, and because seasons produce a steady and predictable cycle of demand for energy, the firm can budget for future capital requirements with a reasonable degree of accuracy. The amount of security this corporation has over many aspects of the firm is what makes the company attractive as an investment proposition. According to the Street, the possible reason for 3M Company’s 30.2% return is because it was recently identified by Trade-Ideas LLC as a new lifetime high candidate. Trade-Ideas identified 3M as such a stock due to 3M Company having an average dollar-volume of $259.3 million, and on any given day, 3M Company may trade roughly 40,000 shares. MMM is trading at a new lifetime high and this could be serious cause for an increase in return. Without even looking in the news, the first thing that comes to mind when thinking of Exxon Mobil is size. As the second largest corporation in the world, Exxon Mobil has created shareholder value for decades, and in the world of energy, there is no other company that has as much as Exxon Mobil. Not only does size play a part in this company’s return, growth is also a possible reason. Exxon Mobil has a number of projects lined up this year and over the next few years. Combined with a recent asset trade with LINN Energy, these initiatives have the potential to put some life back in the company's production and maybe even prove that Exxon Mobil can be a growth stock too.
The next step was to determine whether or not the performance of each of my U.S.-based multinational corporations was driven by the U.S. market. 3M Company appears to be above the U.S. market index movements. I think the stock’s price movements are driven by the U.S. market condition because in the first graph below, 3M Company’s movements closely followed the U.S. market index movements consistently for the past two years. 3M Company has pulled away from the market’s movements more recently, but as stated in the previous paragraph, I credit that separation to the company currently trading at an all-time high. Exxon Mobil’s performance is less driven by the U.S. market, as shown below in the second graph. For majority of the past two years, the stock’s price movements have remained well below the United States market index. I believe this is caused by the company’s massive size and lack of relationship with the U.S. market. Exxon Mobil obviously does business in the United States, but I feel because it is a huge corporation, not only in its industry, but also in the entire market, it has many more business opportunities outside of the United States.
I proceeded to do the same for the two foreign stocks. I determined whether their performance was influenced by the U.S. market. Anheuser-Busch performed very well, remaining well above the U.S. market for all of the past two years. I feel that the foreign stock’s price movements are influenced by the U.S. market index movements because the corporation is highly profitable and depends heavily on the functionality of the market. As illustrated below in the first chart, Anheuser-Busch’s price movements closely mimic that of the United States market. Unfortunately, National Grid did not compare as well to the United States market index movements. I believe the second chart below clearly indicates that this foreign stock is not as driven by the U.S. market index as other companies. The S&P 500 index is consistently increasing over the two year span, while National Grid’s price movements appear to be all over the place.
Next, I compared the two foreign stocks to determine whether the stocks were highly correlated. As shown below and based on information about these two foreign stocks, the foreign stock prices are not highly correlated. Anheuser-Busch is concerned with consumer goods, predominantly beverages and beer. National Grid is focused on utilities, more specifically gas and electricity. In no way do I see that these two foreign stocks are related.
I followed this by reviewing the annual reports of each of my U.S.-based multinational corporations and determining where each stock does most of its business. Based on the annual report, Exxon Mobil is most involved in projects and business outside of the United States, particularly in Asia and Africa. In 2013, Asia accounted for $13.0 billion in total earnings. This high volume of earnings is due to high net liquid production in the Middle East; the Middle East alone creates 545,000 barrels per day. The Americas provided $5.6 billion in earnings, with the United States producing almost $4.2 billion of those earnings. Africa contributed $4.5 billion to the company this year. According to the data book located on 3M Company’s site, the majority of its net sales are in the United States, with $11.1 million being made in 2013. The second geographic area where 3M does most of its business is in the Asia Pacific market, making $9 million in net sales last year. Although the United States may be the highest individual earner for the company, international sales made for 64% of total sales overall.
Finally, I determined whether the stock performance of each of the foreign firms is influenced by the exchange rate movements of the firms’ local currency against the U.S. dollar. Anheuser-Busch is certainly influenced by the exchange rate movements between its local currency and the USD because it does a lot of business with the United States. Anheuser-Busch is incredibly popular worldwide, and definitely in the United States, so the stock performance of this firm depends greatly on the exchange rate movements involving the USD. National Grid, however, is not as influenced by the exchange rate movements involving the USD because this corporation does not interact with the United States nearly as much as Anheuser-Busch.
Through this project, I have learned about international investing and how firms compete in the global market. It’s interesting to see how closely related and intertwined the global market is and how performance in another country’s market can influence an entirely different market. Not only does the global market have an impact on the U.S.-based multinational corporations in my portfolio, it also affects the foreign stocks. The four stocks I chose were all affected positively, and therefore caused my portfolio to produce an average return of 24.4%. I highly recommend investing in the international and global markets.