3 blue chips trailing the bull market stampede

Down for the short term, BHP Billiton, China Mobile and McDonald's should have profitable futures.

By TheStreet.com Staff Mar 12, 2014 11:26AM

Market analyze with digital monitor © woraput/Getty ImagesBy Jonathan Yates, TheStreet


There's no law that says a bull market in stocks can only last five years. But "efficient market" theory does state that eventually all equities will be fairly and fully valued based on the information available. That should result in blue chips with compelling features such as BHP Billiton (BHP), China Mobile (CHL) and McDonald's (MCD) rising again to reward the patient long term investor. The Street on MSN Money


Over the past 12 months, the Standard and Poor's 500 Index ($INX) is up more than 23 percent.


But not all stocks have been lifted by the rising S&P. BHP Billiton, the world's largest natural resources company, has fallen more than 12 percent over that period. China Mobile, the world's largest cell phone company, is down by more than 15 percent. McDonald's, the world's largest fast food restaurant, is off by 3.7 percent.


While trailing the S&P 500 in stock price performance, BHP Billiton, China Mobile and McDonald's top it in many other critical areas for investors.


According to his biographer Carol Loomis, legendary investor Warren Buffett favors companies with a return-on-equity of over 20 percent. McDonald's has a return-on-equity of more than 36 percent. For China Mobile, it also exceeds 36 percent. The return-on-equity for BHP Billiton is just over 35 percent.


These companies are also more profitable than the average member of the S&P 500, which has a profit margin of 9.2 percent.


For China Mobile, the profit margin is nearly five times more at 43.3 percent. BHP Billiton's profit margin is almost four times greater at 36.4 percent. Like the golden arches outside one of its signature restaurants, the profit margin for McDonald's soars above the S&P 500 mean at 19.9 percent.


Not only do these companies make more money, they share more of it with the shareholders.


The average dividend yield for a member of the S&P 500 is under 2 percent. China Mobile pays out more than twice that, at 4.3 percent. BHP Billiton has a dividend yield of 3.5 percent. For McDonald's, the dividend yield is 3.4 percent.


If a bull market does not lift the stock price for BHP Billiton, China Mobile and McDonald's, what will?


Easy: Growth in Asia, especially China. China is the biggest customer for China Mobile and BPH Billiton. Sales for McDonald's are down in the U.S., but up in Asia Pacific. As with so many other firms, growth in China will increase the share prices for BHP Billiton, China Mobile and McDonald's.


After the weak export numbers just reported by the General Administration of Customs for the People's Republic, growth might seem unlikely.


But long term, the outlook for China is very bullish. China saves more, earns more by exporting, has the largest foreign currency reserves and boasts the most purchasing power of any country in the world. Urbanization will increase economic growth in China, too. 

Looking to the future (which is, after all, what investing is about), China has tremendous potential. That should reward investors in BHP Billiton, China Mobile and McDonald's with robust total returns for the long term.


At the time of publication the author had no position in any of the stocks mentioned.


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