Answer to Question #7438 in Finance for LaMarcus Streeter

Question

Use the Internet to find and research a large multinational company in which you might like to invest.

Determine the most significant risk factors associated with investing in the company you selected when compared with investing in a domestic company. Provide specific examples to support your response.

Answer 1

If we were up to choose a multinational company that has bright prospects of growth we would choose Caterpillar Inc. This corporation which designs, manufactures and sells machinery and engines is on the wave these days. Namely, its stock is at the Top-10 of Dow Jones components by growth rate: the stock has climbed 26% so far this year. We’re confident that CAT Inc. will post record sales and profit in 2012 as a results of a U.S. rebound and robust Chinese economic activity. Moreover, Caterpillar Inc. plans to take sole ownership of its Japanese joint venture in the second quarter after partner Mitsubishi Heavy Industries Ltd. agreed to a share-redemption plan worth about $450 million. This might be also good news for those, who are eager to make an investment.
Unfortunately, there is always some degree of risk present in every investment one makes. In my opinion, the valuation risk is the most apparent. The danger of investing in companies that appear overvalued is that there is normally little room for error. The business of CAT Inc. may indeed be wonderful, but if it experiences a significant sales decline in one quarter or does not open new locations as rapidly as it originally projected, the stock will decline significantly.
Unlike the domestic companies, large multinational ones could possibly have interest rate risk, because of different currencies involved in everyday transactions.