Despite S&P's Downgrade Investors Still Prefer the U.S.
In the four months since the unthinkable U.S. downgrade from AAA to AA+, Bloomberg points out, "Dollar-denominated financial assets are doing nothing but appreciating."
Indeed, in that time government bonds have returned 4.4%, the dollar gained 8.6% relative to a basket of currencies, and the S&P 500 index increased 1.7%. Long-term treasuries are the best performing government bonds in the world this year, returning 30%, according to Bloomberg/EFFAS indexes.
"The cost for the nation to borrow has fallen to record lows since S&P said the U.S. was no longer risk-free, with the average monthly yield in November on 10-year notes below 2 percent for the first time since 1950."
Victory against the odds
Sure, Standard and Poor's had some good points when it downgraded the United States, chief of which was Congress' incompetence in the areas of compromise and its inability to lead the country toward a future of fiscal utopia.
What's more, government borrowing recently surpassed $15 trillion for the first time and the budget deficit exceeds $1 trillion for a third year.
But Standard & Poor's misjudged the U.S.' ability to print as much money as it needs to pay its debts. With this power, the United States can pay investors back with ease compared to the EU nations.
The prices of U.S. Treasuries were not much affected either. Michael Cirami, a money manager at Boston-based Eaton Vance Corp. places them "among the safest assets that one can hold" noting a downgrade does not change the liquidity of treasuries.
Apparently foreign investors aren't phased by the downgrade either. According to Bloomberg, foreigners increased holdings of Treasuries by $17.2 billion in August, September and October to $4.66 trillion. Non-U.S. buyers own about 48% of U.S. marketable debt, up from 34% when the nation had a budget surplus in December 2000.
So which American giants are worth a closer look?
For ideas, we collected data on insider transactions, and identified a list of megacap U.S. stocks that have seen significant insider buying over the last six months.
Theoretically, insiders know more about their companies than anyone else. So if they're using their own cash to buy the shares of their employers, you better pay close attention.
Insider executives are optimistic on the outlook of these companies -- do you agree?
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
1. American International Group (NYS: AIG) : The company operates property and casualty insurance networks worldwide and conducts activities in the U.S. life insurance and retirement services industry. Market cap of $44.37B. Over the last six months, insiders were net buyers of 6,982,680 shares, which represents about 2.87% of the company's 243.56M share float.
2. News Corp. (NAS: NWSA) : Operates as a diversified media company worldwide. Market cap of $42.8B. Over the last six months, insiders were net buyers of 3,639,328 shares, which represents about 0.17% of the company's 2.14B share float.
3. VMware (NYS: VMW) : Provides virtualization and virtualization-based cloud infrastructure solutions primarily in the United States. Market cap of $36.23B. Over the last six months, insiders were net buyers of 1,621,764 shares, which represents about 2.09% of the company's 77.60M share float.
4. Dell (NAS: DELL) : Provides integrated technology solutions in the information technology (IT) industry worldwide. Market cap of $27.B. Over the last six months, insiders were net buyers of 17,230,709 shares, which represents about 1.13% of the company's 1.52B share float.
5. Motorola Solutions (NYS: MSI) : Provides business and mission critical communication products and services for enterprise and government customers worldwide. Market cap of $15.03B. Over the last six months, insiders were net buyers of 17,600,969 shares, which represents about 6.73% of the company's 261.49M share float.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above.Author owns shares of DELL. Insider data sourced from Yahoo! Finance.
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