Thursday, May 5, 2011

Record U.S. Stock Prices With 1.8% GDP Growth?

It might seem incongruous for U.S. stock prices to be reaching record levels while economic growth is sluggish and millions of households have made no real financial progress in years.  Yet, corporate profits continue to be impressive, and it is the largest companies that are flourishing because of faster-growing international operations (and associated foreign currency gains).

Avon Products is a good example, as it reported that net income tripled.  This was despite a 2% revenue decline in North America, given the economic struggles of middle-market American consumers.  But Latin America, its largest market, had revenue growth of 16%.  Brazil, which has outstanding long-term prospects with its agricultural and water resources, was particularly strong for Avon.  Overseas operations account for 80% of Avon’s total revenues.

Better yet for Avon are its sustainability characteristics.  Its progressive management landed the company #16 in Corporate Responsibility magazine’s list of the 100 Best Corporate Citizens in 2011.  Avon was rated particularly high in Human Rights, Employee Relations, and Corporate Governance.  And the evidence is clear that companies with strong ESG (environmental, social, and governing) characteristics reflect superior management and better prospects for not only remaining viable, but flourishing.

Steve Lehman

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