The American economy has recovered from the financial crisis of 2007-2008 and now there are very low levels of unemployment and inflation. As the result, the people and the companies feel confident and are willing to spend their money. The growth of the key market indexes proves that the American companies have been benefiting from the economic growth. In the past 5 years, NASDAQ index nearly doubled, Dow Jones Index increased by 75% and S&P500 increased by 68% (Yahoo Finance). Therefore, financial investment may be extremely profitable nowadays.
Before making an investment, one should evaluate his or her own financial situation and comfort zone in taking risks and think about the mix of investments in order to reduce the risks (SEC). If one would like to invest and avoid taking risks, he or she should consider investment into the well-known U.S.-based companies. Such companies usually have high standards of governance and responsibility, and consequently there are fewer risks for the shareholders, but at the cost of low profitability. Secondly, construction, computer systems design, and FMCG are the industries that are attractive for investment at the moment. Construction and FMCG depend on the consumers’ demand and now the economic situation lets the people buy more products or invest in the construction related projects. In turn, computer systems design together with the construction industry are the fastest growing industries nowadays (Biery). The following companies were chosen for this assignment: Home Depot, Microsoft, and Coca-Cola.
In just 5 years Home Depot’s share price rose from $34.38 up to $119.29 (Yahoo Finance). The demand for the construction materials has become very high, because the American housing stock, which equals 130 million homes, needs investment into renovation (Joint Center for Housing Studies of Harvard University). Home Depot has been a market leader and increased its revenues significantly. The company does not pay out high dividends, but its share prices are projected to rise in 2016. At the moment, the company’s P/E ratio equals to 22.37 which is nearly the same as the P/E of the rival company Lowe’s (Yahoo Finance). In addition, Home Depot’s EPS equals to 5.33 and is 60% higher than Lowe’s EPS. (Yahoo Finance)
Microsoft’s share price rose by 57% in the past 5 years. Three key segments that Microsoft focuses on are productivity business processes, intelligent cloud and personal computing (Yahoo Finance). Productivity business processes and intelligent cloud have been the key sources of revenues for Microsoft recently. Microsoft’s P/E ratio equals to 33.90 and EPS equals to 1.5. Microsoft has outperformed the market in the past 3 years due to the increase in net income and stable cash flow from operations (Yahoo Finance).
Finally, the Coca Cola Company is one more well-known company that has been showing positive financial results for several years in a row. Its P/E is 26.47 and EPS is 1.57 (Yahoo Finance). The company has adopted a 2020 Vision Strategy and intends to raise the volume of sold beverages in the next 5 years (Coca Cola Vision 2020). The company is resilient to the market shocks. For instance, its revenues declined insignificantly when there was economic recession several years ago. Buying Coca Cola’s shares could be a low risk and long term investment.
In conclusion, the content of the investment portfolio depends on the type of investment strategy. Investing in Home Depot, Microsoft and Coca-Cola should be long-term, because these companies do not provide the quick gains to the investors. However, Home Depot and Microsoft are outpacing the main indexes and Coca-Cola is slightly behind. So, buying the shares of these companies will have a low risk for the investor. In order to increase the profitability of the suggested portfolio, one should invest the main amount of money into Home Depot or Microsoft. Based on the results of the past 5 years a $20,000 investment into the portfolio that consists of 40% Home Depot’s shares, 40% Microsoft’s shares and 20% Coca Cola’s shares would bring the profit equal to $27,640 (share price growth + dividends).
Works Cited
Biery, M. Guess Which Industries Are Growing the Fastest? The Huffington Post. 7 May
2014. Web. 19 January 2015
Coca-Cola Vision Strategy 2020. Coca-Cola Company. n.d. Web. 18 January 2015
Emerging Trends in the Remodeling Market Report. Joint Center for Housing Studies of
Harvard University. 15 May 2015. Web. 25 December 2015
SEC. Financial Navigating in the Current Economy: Ten Things to Consider Before You
Make Investing Decisions. N.d. Web. 18 January 2015
Yahoo Finance. Company Profiles and Financials: Coca-Cola, Home Depot, Microsoft,
Nasdaq, S&P, Dow Jones, Lowe’s. 18 January 2015. Web. 18 January 2015
