The mighty blue chips have proved a disappointment for investors for the past couple of years. At the beginning of August 1997 Walt Disney was trading at $26.94 (€25.51) and now stands at around $27.19. Over that period investors have realised a grand total percentage gain of 0.9 of a percentage point.
In August 1997, Gillette was valued at $49.50 and is now worth $45, down 9 per cent. Coca-Cola has dropped from $69.13 to $59.81, a drop of 13.5 per cent while Philip Morris has drifted from $45.13 to $35.38 showing a two-year net loss of 21.6 per cent.
For Disney, Gillette, Coke and Philip Morris, measuring from August 1997 may seem unfair. After all, that was when the Asian economic crisis began to unfold in earnest. Naturally, multinational US companies with interests in Asia would be vulnerable. But the bluechip Standard & Poor's 500 index, which includes those four stocks, is up 39 per cent from early August 1997, a gain that makes the performance of the four giants look even worse.
What's more, Asia has been in recovery mode since at least spring, which has registered in the shares of many multinational stocks but not in names such as Coke and Gillette. Certainly, higher interest rates and the stronger dollar have weighed on Coke and its peers this year. But every other multinational has faced the same challenges.
The market's problems with Disney, Gillette, Coke and Philip Morris must reflect issues that are more company-specific than generic. In other words, that there's something wrong with the basic businesses. Philip Morris's major problem is well-known: the tobacco liability issue just won't go away. An aura of invincibility also surrounded Disney, Gillette and Coke two years ago. The bullish story was the same in each case: they were magnificent global brand names, they were far ahead of their competitors, they had the financial power to extend their reach in any market, and they had all sorts of levers they could pull to keep their businesses on track. Yes, Asia was still a problem in the first half, relatively speaking. But most of the rest of the world was still in an economic expansion.
Disney, Coke and Gillette have been favourites among individual investors for a long time. Each also is a major holding of billionaire Warren Buffett. No doubt many small investors believe that if the stocks are good enough for Mr Buffett, they ought to be good enough for them. Investors who still own the consumer giants must assume that the only issue is time: how long before the companies get back on track? A word of warning though: history isn't encouraging. Even high-quality stocks can be dead money for a long, long time.
