Against a backdrop of high energy prices, weaker jobs growth and tougher overseas competition, US co...
Against a backdrop of high energy prices, weaker jobs growth and tougher overseas competition, US companies have realised they must adapt if they are to stay ahead.
For these reasons, restructuring has found favour with many US technology companies following the technology crash of 2000. The changes made by Hewlett Packard's (HP) new chief executive Mark Hurd in 2005 has helped increase earnings for the company. HP has been able to generate cash flow return on investment through its research and development programme and improve its competitive advantage.
Another positive change story is Coca Cola Enterprises, the largest Coke bottler in America. New management, with a reputation for tightly managing assets, has recently taken over the company. The team plans to make positive changes for Coca Cola through allocation of capital to generate improved returns.
Coca Cola spent many years pursuing an acquisitive strategy aimed at growth rather than profitability, such that the company's returns are now very low compared to other players in the industry.
Generally speaking, by virtue of its size and diversity, it is impossible for investors to overlook the US stock market. As the largest market in the world with such a breadth of companies to choose from, good opportunities continue to exist among companies which share a philosophy of change.
However, as the market can be slow to appreciate change, investors should be looking to exploit this window of opportunity.
Looking forward, admittedly there are risks to economic stability such as higher interest rates and faltering consumer spending. But, the solid corporate background should help companies overcome these challenges. Balance sheets are healthy and corporate profits - the major driver of share prices - are in good shape too.
US businesses remain committed to restructuring and cost cutting in order to kickstart earnings. Investors should continue to find plenty of investment opportunities in the North American universe that will create shareholder value independent of the economic environment.
A thirst for change has already manifested itself in US corporate profitability, which has recovered materially from the lows of the technology boom and bust.
Today's greater focus on efficient capital allocation contrasts sharply with the corporate landscape of the late 1990s when many businesses used all their spare cash to expand.
Change can present itself in a variety of guises. It can be a thematic 'tailwind' such as globalisation or changing demographics in China and the impact this has on, for example, commodity prices - an 'external' change if you like.
Or, as is often the case, it is an internal change within a company which unlocks capital - whether it comes about through spinning off unprofitable assets, re-launching a brand, evolving product lines or formulating a new business plan.
Cash flow return on investment rather than earnings per share is most important - exemplified in companies that realise there is not much to be gained from growing if you are not turning in a profit.
These should be the areas which investors look out for when choosing US stocks. Companies restructuring have presented many opportunities for the US investor.key points
US company restructuring helping market
Hewlett Packard benefited from new CEO
Coca Cola profits improving from change of management
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress