American stocks are dominating global equities by the most in a decade, taking a majority of the spots in a ranking of the 20 biggest companies, after earnings rose faster than the rest of the world as the global economy rebounded.
Apple Inc., International Business Machines Corp., Wells Fargo & Co. and four more U.S. companies joined the top 20 since stocks peaked in 2007, bringing the total to 14, according to data compiled by Bloomberg. They replaced Moscow-based Gazprom OAO, China Petroleum & Chemical Corp. in Beijing, Petroleo Brasileiro SA of Rio de Janeiro and six others from Europe and Asia. Of the nine added, only BHP Billiton Ltd. and Nestle SA are based outside the U.S.
More U.S. corporations are represented than any time since 2003 after 10 quarters of economic expansion and profit growth lifted the Standard & Poor’s 500 Index 109 percent since shares bottomed in March 2009. The shift reflects volatility in emerging markets and shows how innovation builds value in the U.S.
“The U.S. is just the best place on the planet to have a great idea and turn it into a big business,” according to Michael Shaoul, chairman of New York-based Marketfield Asset Management, which oversees $2.7 billion.
“There’s another reason for this list to have shifted and that is the falling of prior darlings,” said Shaoul, whose fund beat 99 percent of competitors in the past year. “A lot of the ones which have fallen are energy and emerging-market related.”
American companies are gaining strength in part because of Europe’s sovereign debt crisis. While the S&P 500 fell 0.5 percent last week, retreating from a four-year high, amid concern European leaders will fail to preserve the 17-nation currency union, the Euro Stoxx 50 Index slid 1.5 percent. The S&P 500 fell less than 0.1 percent to 1,410.44 at 4 p.m. in New York today.
Computer and software makers became the top industry in the S&P 500, overtaking financial companies, as Apple and IBM joined Google Inc. and Microsoft Corp. among the biggest stocks. The last time a non-U.S. technology producer made the global ranking was in 2001, when Espoo, Finland-based Nokia Oyj was the world’s largest mobile-phone maker. Nokia’s market value has fallen by 92 percent since Apple introduced the iPhone in 2007.
The Cupertino, California-based maker of iPad computers last week became the most valuable U.S. company ever as the stock rose to $668.87 on Aug. 22, giving the company a value of $627 billion. Apple, which approached bankruptcy in 1997, has jumped more than 80-fold in the past decade.
IBM’s market value more than doubled over the decade as the company shifted its strategy toward more-profitable software sales and away from hardware and consulting. The Armonk, New York-based company, with a market capitalization of $226 billion, closed the gap with Microsoft, valued at $256.2 billion, to become the No. 3 technology maker and the world’s seventh-biggest company.
Microsoft, based in Redmond, Washington, was worth four times as much as IBM in 1999. Mountain View, California-based Google, owner of the world’s most popular search engine, is valued at $222.6 billion.
“There are not a lot of other companies that can compete with the Googles and the Apples of the world,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in an Aug. 23 phone interview. His firm oversees $350 billion. “We have probably the most cutting-edge companies in the technology space that exist today. Who can match Apple? I can’t think of anybody.”
Computer and software makers represent 20 percent of the S&P 500. The industry’s weighting outside the U.S. is 4 percent, as measured by the MSCI World ex-U.S. Index.
Profit growth drove the U.S. gains. The 14 biggest U.S. companies earned $248.4 billion in the last 12 months, more than double the total made by the 67 companies in Brazil’s Bovespa Index. Their market value reached $3.57 trillion, about the size of Germany’s 2011 gross domestic product.
Earnings at the seven newly added American companies surged 40 percent during the past four years, while income for the 13 non-U.S. firms that made the 2007 list rose 6 percent, data compiled by Bloomberg show.
The ranking reflects the U.S. economy, where growth climbed back toward pre-2008 levels faster than other countries. Gross domestic product is forecast to gain 2.2 percent this year, according to the median estimate of 78 economists surveyed by Bloomberg. That compares with an average of 2.6 percent between 2002 and 2007, before the credit crisis, the data show.
China is projected to expand by 8.1 percent, compared with its mean rate of 11.2 percent before the global recession. Brazil’s GDP may increase 1.9 percent, down from an average of 3.8 percent. Russia may grow by 3.8 percent, next to 7.1 percent in the five years before the credit crisis.
“People perceive not only better growth for the U.S., but also less risk,” Chris Leavy, the chief investment officer of fundamental equities at New York-based BlackRock Inc., which oversees $3.56 trillion as the world’s biggest money manager, said in an Aug. 22 interview.
Investors are demanding more profit to reward companies with higher stock prices than before the credit crisis shattered confidence in equities. The average capitalization of the largest 20 companies shrunk 17 percent to $242.5 billion since 2007 even as profits surged almost fourfold to $18.8 billion, data compiled by Bloomberg show.
The biggest companies, dominated in 2007 by commodity explorers and enterprises controlled by China’s government, traded at an average price-earnings ratio of 57.6, the data show. Today, after the addition of two American technology developers and a California bank, the average valuation is 12.9, according to the data.
“It’s so commonplace in this country to vilify corporations, but the truth is the American corporate structure has worked very well,” David Kelly, chief market strategist at JPMorgan Funds in New York, said in an Aug. 22 phone interview. His firm oversees about $348 billion. “There are other countries which are doing very well economically, but don’t do as good a job as inventing and reinventing themselves.”
The S&P 500 trailed the rest of the world in the previous bull market as accelerating growth in China boosted demand for commodities from Brazil to Russia. The index rose 99 percent during the five-year rally that ended in October 2007, lagging behind a 187 percent gain by the MSCI World ex-U.S. Index and a 416 percent surge in an MSCI gauge tracking 21 emerging markets.
PetroChina Co. surpassed Exxon Mobil Corp. to become the world’s biggest company after shares of the Beijing-based oil producer almost tripled on the first day of Shanghai trading on Nov. 5, 2007. The same year, Industrial & Commercial Bank of China Ltd. overtook Citigroup Inc. as the world’s largest bank while Gazprom and Petrobras eclipsed Procter & Gamble Co. and Berkshire Hathaway Inc.
The number of Chinese companies has since fallen to three from six while those from Brazil, Russia, U.K. and France have disappeared from the top 20 amid the weakest Chinese growth since 2009 and an economic contraction in Europe.
PetroChina, which became the world’s first $1 trillion company five years ago, has dropped to No. 4 with a market capitalization of $251.7 billion. Irving, Texas-based Exxon, the second-biggest company, is valued at $406.4 billion.
While America’s expansion is “impressive,” companies need to boost sales rather than counting on cost cuts to increase profits, according to Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas.
“I would be careful not to over-interpret that and say that this is now validation that the U.S. corporate sector will continue to dominate,” Ryan, whose firm oversees $797 billion, said in an Aug. 22 phone interview. “You still need to see U.S. companies continue to do the things that they’ve done well, i.e. improving efficiency, but also finding ways of trying to grow the top line.”
Sales at S&P 500 companies are forecast to rise 0.4 percent in the current quarter, the slowest growth since 2009, according to analyst estimates compiled by Bloomberg.
Three other energy stocks ceded their top spots along with Gazprom and Petrobras. Total SA in France, BP Plc in U.K. and China Petroleum exited as their market value shrank at least 41 percent since 2007.
Chevron Corp., an oil and natural gas producer based in San Ramon, California, and BHP Billiton, a mining company based in Melbourne, entered the list, valued $219.8 billion and $175.8 billion, respectively.
Wells Fargo, based in San Francisco, is catching up with Beijing-based ICBC, whose $206.5 billion makes it the world’s most valuable bank. The largest U.S. home lender, which posted annual profits for more than a decade, is worth $179.8 billion and ranks No. 18 in the top 20 list.
Wal-Mart Stores Inc., the discount retailer in Bentonville, Arkansas, and health-care companies Johnson & Johnson and Pfizer Inc. joined the group as investors favored stocks whose earnings are less tied to economic swings.
Wal-Mart rose to the fifth spot with a market capitalization of $244 billion. J&J and Pfizer, ranked 16th and 19th, are valued $186.4 billion and $179.3 billion, respectively.
Nestle, a food company based in Vevey, Switzerland, is the only addition from Europe, valued $202.8 billion.
America’s dominance should last because of advantages such as universities and venture capital, Howard Ward, who helps oversee $35.6 billion at Gamco Investors Inc. in Rye, New York, said in an Aug. 23 phone interview.
“We have many of the best educational institutions, which train entrepreneurs and then provide the talent to run their companies,” said Ward. “We have the world’s largest and most liquid stock market. We have the largest end markets for technology products. It’s just easier to launch a tech company here than anywhere else.”