Restaurants are an area that don’t get much attention in the media, but can be a place where investors can find alpha. With that in mind, we wanted to run some analyst picks that choose the best food stocks. The three names are Dunkin Brands, McDonalds, and Yum! Brands. The case for Dunkin is that though the company has underperformed a little lately, they are poised for a rebound, especially with the new branding of just “Dunkin”.
FINSUM: McDonalds is the most interesting pick for us, as we admire the changes and leadership of the CEO and think updating the menu and the physical restaurants has and will continue to be successful.
High yield had a very bleak run to finish 2018. The asset class went over 40 days without a single sale as the junk credit market seized up. However, it has made a comeback in a major way. The first five weeks of 2019 saw a staggering 5.25% gain in the Bloomberg Barclays US Corporate High Yield Index. New issues were quite oversubscribed (more than double), and the general mood has completely shifted.
FINSUM: The Fed backing off on rates sure makes a difference! It is interesting the market reacted this sharply given that high yield is relatively more insulated from rates. In our view, the turnaround is largely a relief rally that the Fed won’t push the economy into a recession.
Hate him or love him, you have definitely heard of him and may respect him. Paul Krugman is one of the most famous economists in the world, and he has just put out a warning we think investors need to hear. Krugman’s big fear is that trouble is building in the economy and the Fed doesn’t have much firepower to help stimulate things if and when growth heads backwards. “There seems to be an accumulation of smaller problems and the underlying backdrop is that we have no good policy response”. Krugman argues that hiking rates was never “grounded in the data” to start with and that “Continuing to raise rates was really looking like a bad idea”.
FINSUM: What we know is that a recession will come at some time, what we don’t know is when. Krugman has given sometime in the next two years as his timeline, which to us wreaks of a lack of confidence.
Value stocks have been in a slump for a decade, with growth consistently outperforming. That acknowledged, there is still something to be said for buying beaten up stocks, which seem to have less downside than highly valued growth names. But how to do it? Try an old stock picker’s favorite: buy the ten stocks with the highest dividend yields in the Dow, a strategy which has historically performed well and is called the “Dogs of the Dow”. These stocks tend to have great dividend yields, and generally outperform the index as a whole. The bottom ten right now are: Verizon, IBM, Pfizer, Chevron, Exxon-Mobil, Merck, Coca-Cola, Cisco, Procter & Gamble, and JP Morgan.
FINSUM: This sounds like a solid bet, though because of the group, you are buying them with no real catalyst.
Barron’s has just put out a very timely list. The publication has compiled a list which ranks the 100 top companies according to sustainability. Sustainability, which is a component of and often linked to ESG, has become an increasingly important component of returns, so Barron’s rankings will likely make a difference to portfolios. The top ranked firm is Best Buy, followed by Cisco, Agilent Technologies, Texas Instruments, Voya Financial, and Clorox. The top 25 also includes Salesforce, Cummins, and Kellogg.
FINSUM: ESG is an increasingly important area not only for returns, but also for clients, so this is quite a handy list for what can be a surprisingly difficult to handle issue (i.e. deciding which companies are sustainable and not).