Dow Jones U.S. Economic Stimulus Index: Top 10 Components

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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.

Banks in Key European Stock Indices

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The “top big to fail” concept in the banking industry that has been embraced by U.S. is also true in Europe. European governments also tend to support large banks that are important for the financial system. When smaller banks run into trouble they are left to die or forced to be taken over by bigger rivals. So in one sense, when it comes to investing in European banks , it may be wiser to first pick the large systematically important banks.

One way to identify such large European banks is to review the components of each country’s main stock indices. Following this logic, lets take a look at the banks from the 3 main European stock indices.

1.FTSE 100 Index (UK)
Barclays (BCS)
HSBC Holdings (HBC)
Standard Chartered
Llyods Bank (LYG)
Royal Bank of Scotland (RBS)

2.CAC-40 Index (France)
Credit Agriole
BNP Paribas (BNPQY)
Dexia
Societe Generale (SCGLY)

3.DAX (Germany)
Deutsche Bank (DB)
Commerzbank (CRZBY)

Among the banks listed above HSBC(HBC), BNP Paribas and Deutsche Bank(DB) weathered the credit crisis better than others. With its strong presence in Asia and global reach, HSBC will perform better when the economy improves. Simiarly BNP Paribas(BNPQY) is in a better than position than its rival Societe Generale which was hit with a huge loss last year made by a rogue trade. Risk management at Societe Generale(SCGLY) slipped in the past few years which is unusual. Deutsche bank is the global german banking powerhouse with operations in many emerging countries. Commerzbank(CRZBY), while not as famous as Deutsche Bank, is a large banking group with a rich tradition dating bank to 1800s. It must also be noted that though European banks leveraged themselves much more than US banks during the pre-credit crisis years, they have written off most of the losses and are better positioned now than US banks. This is because they do not have to face huge losses due to collapse in the residential real estate sector as their US peers. Other than UK and Spain, the housing market in most European countries remain stable and unemployment level is still at manageable levels.

U.S. Health Care: Comparison with Other Countries

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How does the U.S. Health Care system compare with other countries?.In order to answer this question I created five charts that are listed below. This article is an update to “A Comparison of U.S. Health Care Spending with Other OECD Countries ” I wrote back in July.

1.Total Expenditure on Health per Capita in USA

Click to ExpandTotal-Expenditures-on-Health-per-capita

The U.S. spends the highest among the OECD countries  as shown above. The data used is for 2006. On a per capita basis, the U.S. spent $6,933. Most countries in the chart spent less than half of that amount.

2.Total Expenditure on Health as a percentage of GDP

Total-Expenditure-on-Health-as-percentage-of-GDP

Health expenditures as percentage of GDP was 15.8%, the highest among the countries listed. France spent 11% of its GDP while Canada spent 10%.

3.Doctors Consultations per Capita

While the US spends the most amount of money for health care, doctor consultations by Americans is one of the lowest.For France it is over 6 compared to under 4 for US. This chart shows that the higher amount spent by Americans does not necessarily go to seeing doctors. I suspect it goes to many unnecessary things like tons of paperwork, procedures, etc.

Doctors-Consultations-Comparison

 4.Infant Mortality Rates

Infant-Mortality-Rates-Compare-USA

Turkey and Mexico have the highest infant mortality rates. Among the developed countries, the rate for U.S. is high.

5.Total Hospital Beds

Total-Hospital-Beds

Japan has the highest number of hospitals beds per 1,000. The U.S. rate is lower many developed countries like France, Canada and the U.K.

Other charts:

6. Medical Graduates per 100,000

medical-grads

 7. General Practitioners and Specialists

General-Doctors-Specialists

Source: OECD

From the charts above, it is clear that the U.S. health care system needs to be improved. The current system is inefficient and does not offer the best possible for the amount spent.

Ten Leading Global Utility Stocks

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The Dow Jones Utilities Titans 30 Index represents 30 leading companies in the global utilities sector. These stocks are selected based on “rankings by float-adjusted market capitalization, revenue and net profit.”

Generally considered as defensive plays, utility stocks offer consistent yields and stable long-term growth. However this year the sector is under-performing other sectors.For example, the S&P 500 is up 10.13% for the year as of September 2nd. The IT components in the index are up a cool 35.88% year-to-date(YTD) But the utility components are the second worst performers with a loss of 1.94% YTD.Mirroring this index is the performance of The Dow Jones Utilities Titans 30 Index which contains utilities from many countries. This index is down 0.05% as of August 31,2009. Last year during the brutal market correction the index fell 32%. The current dividend yield of this is 3.81%.

The Top 10 Components from the  DJ Utilities Titans 30 Index and their current yields are listed below:

Company: E.ON AG (EONGY)
Country: Germany
Dividend Yield: 4.93%%

Company: GDF Suez S.A. (GDFZY)
Country: France
Dividend Yield: 2.01%

Company: RWE AG (RWEOY)
Country: Germany
Dividend Yield: 6.59%

Company: Enel S.p.A.(E)
Country: Italy
Dividend Yield: 14.26%

Company: Tokyo Electric Power Co. Inc. (TKECF)
Country: Japan
Dividend Yield: No regular dividends paid

Company: Exelon Corp.(EXC)
Country: USA
Dividend Yield: 4.32%

Company: Iberdrola S.A.(IBDRY)
Country: Spain
Dividend Yield: 5.76%

Company: Southern Co.(SO)
Country: USA
Dividend Yield: 5.63%

Company: National Grid PLC (NGG)
Country: Uk
Dividend Yield: 7.30%

Company: FPL Group Inc.(FPL)
Country: USA
Dividend Yield: 3.41%

Global Utility ETFs and a Related Article:
SPDR S&P International Utilities Sector ETF (IPU)
S&P Global Utilities Sector Index Fund (JXI)
European Utilities Vs. US Utilities

Knowledge is Power: Dubai,Commercial Property,Debt Trap Edition

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Faith in China’s economic growth prospects and fiscal stimulus package keep some fund managers and analysts focused on the long-term.For staunch believers, weakness in China shares is a temporary blip

Berlin calls on banks and industry to work together to thaw the flow of credit to small firms.Credit glacier 

Those in the commercial real estate market are hardly in a festive mood, despite some recent encouraging signs.For Commercial Real Estate, Hard Times Have Just Begun

The risk of unemployment combined with negative equity could catch out young borrowers.When home is a debt trap

Battered but not beaten, Dubai is fighting back with a marketing offensive that includes bringing the X-Factor to town. Dubai has the X-Factor

Alistair Darling has pledged that Labour will spend ‘whatever we can’ to keep people in jobs during the recession…Darling: I’ll spend our way out of recession

“Invest in what you know” can be solid advice, especially when you know your cash is going into institutions carrying a US government guarantee – such as the five that dominated August’s US stock price surge. This isn’t deep science, far from it. Call it “moron capitalism”.Moron capitalism

October has a fearsome reputation built on great crashes and other pyrotechnics, but through the years..Actually, September is the cruellest month

Schönbrunn Najadenbrunn in Vienna.