The “Dow Jones U.S. Economic Stimulus Index” was first published in May this year to track the performance of the 50 largest U.S. companies that are expected to benefit from the American Recovery and Reinvestment Act of 2009. The act intends to stimulate the economy by investing about $787 B in various sectors such as Alternative Energy, Construction & Materials, Energy Grid, Environment, Technology and
Telecommunications/Internet.
The 50 components of the Dow Jones U.S. Economic Stimulus Index are selected based on market capitalization and are equally weighted. All the companies are related to industries that will be directly impacted by this huge spending.
The S&P was up 12.99% as of August 31,2009. During the same period the DJ Economic Stimulus Index was up 17.01%. About 40% of the components in the index are industrials. Technology stocks make up the second largest group with 18.50%. A brief overview of the Top 10 components of this index follows:
1.Phoenix,AZ based Freeport-McMoRan Copper & Gold Inc (FCX) is one of the world’s largest gold, molybdenum and lowest-cost copper producer. In 2007, the company acquired copper producer Phelps Dodge. As a commodity sector stock, the beta is very high at 1.8. Freeport does not pay regular dividends. Total revenues last year was $13B. The company has operations in Africa, Indonesia, North and South America.
2.McDermott International Inc. (MDR) is an engineering and construction company with a focus on energy, power and oil industries.In the second quarter,2009 the company reported a net income of $92.6 million on revenues of $1,565.0 million. The order backlog was $9.5 B. The current market cap is $5.7 B and the beta is 1.7.
3.Southern Copper Corp. (PCU) is a mining company producing copper, molybdenum, zinc and silver with operations in Mexico,Chile and Peru. Last year the profit was margin was about 17% on revenues of $3.3B. The current dividend yield is 1.42%.
4.Nalco Holding Co.(NLC) is a clean-tech company providing ” integrated water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits”. In the past 52 weeks, NLC is down 23.40% and the current yield is 0.82%. Alternative energy companies such as Nalco and others will be one of the major beneficiaries of the economic stimulus spending in the coming months.
5.The world’s most popular engine company Google Inc’s (GOOG) stock closed at $461.20 on Friday. After its IPO for $100 in 2004, the stock had a meteoric rise crossing $700 in October,2007 creating many paper millionaires called “googlionaires” in the process.As a tech outfit, Google does not pay dividends.The current P/E is 32 and the market cap is $146B.
6.Houston, Texas based KBR Inc.(KBR) engineering and construction company with a significant interest in government sector. Formerly part of Halliburton, KBR has operations in Iraq, Afghanistan and other countries supporting the US government with its civilian and military efforts.Total revenues in 2008 was $12.7B and the annual revenue growth is about 30%. Similar to defense contractors, companies like KBR benefit greatly due to wars and occupations as new infrastructures such as military bases, embassy buildings are built.
7. As one of the largest tech giants in the world, International Business Machines Corp. (IBM) continues to grow in this economic downturn.While the company hasn’t grown in the U.S. in terms of employee count in the past few years, it has grown exponentially in many overseas markets such as India, China, etc. hiring thousands of employees. A while ago IBM even proposed to US employees to move India to keep their jobs and cut costs. IBM’s average profit margin is 13%. The current yield is 1.87%.
8.Intel Corp. (INTC) is one the world’s largest semiconductor chips makers. Intel pays a dividend of 2.85%. Intel used to be one of the favorite tech companies among investors during the dot com era. In the current recession, Intel and other tech companies are growing strongly in overseas markets where the demand for their products is high.
9.Johnson Controls Inc. (JCI) offers “automotive interiors, products and services that optimize energy usage in buildings and batteries for automobiles and hybrid electric vehicles.” The company was founded in Milwaukee, Wisconsin by Professor Warren S. Johnson who invented the first electric thermostat in 1885. Revenues have been increasing at the rate of about 13% annually in the past 5 years. As more money flows into green technologies in the coming years, Johnson Controls may have higher growth.
10.Cisco Systems Inc.(CSCO) is another tech company that was highly popular among investors in the late 90s. When the dot com boom ended, Cisco fell so hard that for many years investors hoped that they had bought the other Sysco(SYY) instead of Cisco. Cisco is a maker of networking gear such as routers, switches, etc. Cisco is expected to benefit from the spending on upgrade of our broadband infrastructure. In the global broadband household penetration rankings for 2008, the U.S. currently ranks 20th. South Korea took first spot where 95% of households access the internet via broadband.
