ARM, on the other hand, has positioned itself at the heart of must-have fashion gizmos regardless of which company makes them. The company designs and sells intellectual property that manufactures use to make the processors and other electronic components that drive their gizmos. ARM does it cheaper and better, which has led to mass adoption of its offering. For its trouble, the company earns a license fee each time it sells a design and an ongoing royalty as the end products sell. It’s a successful formula that has attracted a lofty valuation. Nevertheless, I’m much more likely to invest in ARM than in Apple Inc. (NASDAQ:AAPL).
Distribution
Plumbers and builders tend to be loyal to their suppliers, thanks to the effort and hidden costs involved with changing. Wolseley enjoys a mainstream distribution presence on both sides of the Atlantic and can be a decent vehicle for investors to ride the fortunes of the entire industry. The plumbing and building industries are inherently cyclical, and Wolseley has recently emerged from a stomach-churning lurch downward in both its business and its share price.
However, a recent focus on cash and profit generation has seen a multibagging share-price recovery. Underlying earnings cover the dividend well, and the company has paid off most of its previous debt. Earnings and cash flow have been growing, and to complete the turnaround story, the valuation appears to understate the company’s forward prospects. However, things could change rapidly in the event of another downturn in demand. I have the shares on watch and may pounce on any share-price weakness.
Building materials
CRH earns more than 60% of revenue from supplying diversified building materials such as cement, aggregates, asphalt, and ready-mix concrete. It’s a cyclical business, and debt became a problem during 2009, when a drop in trade caused the company to raise money with a dilutive two-for-seven rights issue, which raised funds to pay down debt and fund acquisitions. There’s still a lot of debt on the balance sheet, and the company’s potential to deliver stock market-beating total returns depends on the macroeconomic cycles that the company’s business rides, in my view. CRH doesn’t tick enough boxes for me to invest just now, but I’m watching it.
Retailing
Consumers seem to be shifting to non-High-Street shopping, which is challenging the traditional business model of retailers such as Marks & Spencer. On top of that, the company has been coping with the recent economic slowdown. Multichannel revenue accounted for around 6% of overall sales last year, so there’s still a lot of work to do if the company is to reshape its business. I think Marks & Spencer’s total-return potential is uncertain, so I’m not investing right now.
The article Should I Invest in These 5 Big-Cap Shares? originally appeared on Fool.com and is written by Kevin Godbold.
Kevin Godbold owns no shares in any of the companies mentioned in this article. The Motley Fool recommends and owns shares of Apple.
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