The US market is massive. The NASDAQ and New York Stock Exchange house companies with a combined market capitalisation of around $44trn*.
In our view, the sheer breadth of available investments makes the region very exciting. But choosing investments here can feel like sifting for gold in an unending stream. We think there are some trends in the US that can help whittle down the options.
Remember, before you can trade US shares, you need to complete and return a W-8BEN form.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
Alphabet
Alphabet owns Google. It’s one of the world’s most famous, and biggest, companies. But before you think we’ve run out of more creative ideas, there are some recent developments that we think makes Alphabet worth watching.
It could be well-placed to capitalise on the rapid uptake of artificial intelligence, or AI. Other tech names have a potential stronghold on the application or infrastructure side, but Alphabet’s cloud business is seeing a rocket-fuelled interest because of AI.
We should caution that competition is likely to be very fierce in this space as companies compete for land in the AI world, and that will come with a level of risk.
Alphabet’s balance sheet has over $100bn of cash sitting on it. That’s arguably too much and could be put to better use, but that’s a very nice problem to have. It gives the group fuel to invest in moonshots which might pave the way for exciting growth in the future that other companies simply can’t replicate.
Take a closer look at the rise of AI and what it means for big tech and our jobs.
Google Cloud first quarter profits
Source: Alphabet Quarterly Earnings 2021-2023
While those ideas trundle on, the core advertising model remains the main event and is an incredibly attractive business. Times are tough for companies that rely on advertising spending, which is why ad growth was ultimately slower for the Google owner last quarter. But it’s still one of the most powerful ad-service businesses in the world. In our opinion, it’s well-placed to thrive over the long term.
As ever, good things usually come at a price. Alphabet’s valuation has seen a 40% rally in the year-to-date. That reflects genuine enthusiasm from the market, which we happen to share. But it does add a layer of risk and means Alphabet should only be considered by investors with a long term view – ups and downs are likely.
See the latest Alphabet share price and how to deal
American Express
Founded in 1850’s in New York, American Express (Amex) offers something a bit different to other credit card companies. Its focus on premium makes it stronger than other providers in the face of consumer slowdowns.
The rate at which customers have been falling behind on payments has been more manageable for Amex, with broad declines being seen across the entire industry because of tough economic conditions. Amex’s so-called delinquencies for April US consumer cards were 1.1%, flat compared to the prior month, but up on the previous year. We view that as a strong result.
You might be wondering why we’re highlighting a company with increasing rates of unpaid loans at all. The truth is, periods of difficult consumer behaviour are part and parcel of operating in this space, and we think Amex has an excellent offering and strong brand to thrive over the long term.
Its broader portfolio focuses on an integrated payments platform, card issuance, and most importantly in our view, its membership model which has helped create a unique and powerful brand. Despite the difficult broader conditions, Amex saw record uptake of the US Consumer Platinum and Gold Cards, as well as Business Platinum last year. That’s a result of the group’s shrewd efforts to be linked with lifestyle benefits as well as its strong core card offering.
10 biggest US card issuers measured by cards in circulation (millions)
Source: cardrates.com May 2023
We think this payments giant offers something exciting and a bit different, backed up by a sturdy financial position. The group generated about $19.2bn in free cash flow last year, and the balance sheet is also in good health.
We don’t believe the market is currently pricing in all these strengths. Investors should keep in mind a worse-than-expected level of payment defaults would hurt short-term sentiment of the group.
See the latest American Express share price and how to deal
Caterpillar
From glitzy mega-caps and luxury lifestyle financials to an infrastructure giant. Caterpillar is one of our five shares to watch this year. That’s because for nearly a century, the company's built mission-critical heavy machinery, which has led to its position as one of the world's most valuable brands.
But why do we think Caterpillar’s especially interesting now? At the end of 2021, President Biden signed a whopping $1.2trn infrastructure bill into law. This acts as a catalyst for large-scale, long-term projects and the specialised equipment needed to make them happen.
Caterpillar’s kit spans everything from mining equipment, oil & gas machinery to construction tools. The essential and highly specialised nature of the group’s offerings helps feed into quarterly revenues of around $16bn. A reasonable proportion of that drops through to free cash flow. That helps underpin a prospective yield of 2.4%. Please remember no dividend is ever guaranteed.
Caterpillar free cash flow ($bn)
Source: Refinitiv Eikon
However, there are two main things to keep in mind. One, is that at around $30bn, net debt is higher than ideal. It’s not unsustainable, but it’s something to monitor. The second is that like any company in this area, Caterpillar would be exposed to a sharp economic downturn.
Overall, we think Caterpillar’s very high barriers to entry and strong brand mean it has potential for long-term investors. But remember all investing comes with risk and share prices can go down as well as up.
See the latest Caterpillar share price and how to deal
*Estimates correct as of April 2023
Unless otherwise stated, estimates, are a consensus of analyst forecasts provided by Refinitiv. These estimates aren’t a reliable indicator of future performance. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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