By David Sterman of StreetAuthority NEW YORK ( StreetAuthority) -- Ironically, some of the most highly valued stocks in the Dow appear to hold some of the highest risk. That may come as a surprise when you consider that the broader markets (as measured by the S&P 500) have risen more than 80% from their early 2009 lows. Then again, if the markets need a rest in 2011 after such a strong two-year run, a number of stocks will be ripe for profit-taking. That's why I'm looking at the Dow's richest stocks today. These companies have relatively high price-to-earnings (P/E) ratios, and more important, a high degree of exposure to foreign markets. That's a plus if the global economy rebounds in 2011. But it will be a real negative if China (See: "5 Landmines for Chinese Stocks"), Brazil (See: "The Number One Reason Brazil Could be Headed for a Pullback") or even Europe ( "If the Euro Crisis Deepens...") find tougher sledding in 2011.
More important, sales in foreign markets appear to be weakening even more dramatically. China in particular is starting to weaken, according to Citigroup. And that could be a sign of things to come: When McDonald's ventured into Latin America in the 1990s, it saw early success. But by 2005, it became increasingly clear that many Latin American economies simply couldn't sustain the model, as the cost of a Big Mac rivaled a full meal sold elsewhere. As a result, the company closed more than 500 stores in Latin America during 2005 and 2006. These days, it's fair to wonder if the nascent China slowdown is also a sign that the premium pricing afforded to Big Macs is becoming a problem. Yet in the United States, McDonald's has had a very impressive run against key rivals. In 2001, McDonald's controlled about 14% of the quick-service restaurant (QSR) segment, while Burger King and Wendy's ( WEN) held a combined 10% market share. A decade later, McDonald's' share has risen to 17% while its two rivals have seen their collective share slump to 9.5%.
Yet should investors continue to expect Burger King and Wendy's to keep stumbling? Each of these chains has been able to reinvent itself in the past, and each is now controlled by hedge funds that know the importance of investing in the brand. Just a little momentum from either of these players could meaningfully blunt McDonald's' same-store sales momentum. Mickey D's faces another challenge: Commodity costs are rising for many basic inputs such as wheat and beef. That could pressure profit margins. Goldman Sachs notes that "MCD's company restaurant margins strongly correlate to a weighted basket of 19 commodities."
Cyclical plays like Caterpillar tend to see their forward P/E ratio shrink into single digits when a peak is in sight. Right now, investors must presume that Caterpillar's earnings per share (EPS) can surge from $5.75 in 2011 to more than $10 a share within a few years, as shares already trade for nearly 10 times that very lofty profit goal. For the record, Caterpillar has never earned more than $5.66 a share in its history. This article originally appeared on StreetAuthority. Click here to read more articles from David Sterman on StreetAuthority. At the time of publication, David Sterman owned no positions in the stocks mentioned. --Written by David Sterman of StreetAuthority. >To contact the staff member responsible for this article, click here: Ross Snel. >To follow the StreetAuthority on Twitter, go to http://twitter.com/streetauthority. >To submit a news tip, send an email to: email@example.com.