Eq: Value (17)
In our ongoing coverage of the best funds and products we met at the Inside ETFs conference (and in our regular course of business), we today want to highlight Exponential Funds’ American Customer Satisfaction ETF (ACSI). We met with the founding team of the issuer and the fund last month and were impressed with both their concept and implementation. The fund itself takes a different tack in choosing quality companies with good outlooks—instead of focusing solely on financial performance as most other funds do, it looks to extensive customer satisfaction surveys, and chooses the companies which are scoring most highly with consumers. It uses the American Customer Satisfaction Index, which was founded in 1994 at the University of Michigan, as the basis for its models. Customer satisfaction is a widely recognized metric and is ultimately a statement of economic value, so companies that score highly in the area are serving their customers well and are likely to thrive. The fund has an expense ratio of 0.66%.
FINSUM: We really like the angle this fund has developed as it takes a totally different view than mainstream ways of judging company outlooks. We see this as a long-term play that could have significant rewards.
One of the best ways to pick stocks is to look at insider purchases. When those in-the-know on a company are buying stock with their own money, it is a probably a good time to pay attention. Well, one well-known but dormant stock (in terms of insider purchases) just saw a significant move—Goodyear. One of the rubber company’s board members just spent about $650,000 to buy 35,000 shares of the company. There has not been an insider purchase that large at Goodyear since at least 2004.
FINSUM: We obviously don’t know the catalyst for this buy, but the chatter about how tire companies will benefit in the long-term from self-driving cars (i.e. more miles driven because it is cheaper to keep the cars moving than park them) seems like a strong fundamental.
We thought our readers might like to see some high conviction stock buys from top ranking sell-side analysts. All of the following seven picks are rated a “strong buy” by top ranked analysts and have price targets 20% or more above the current price. The picks come from a wide variety of sectors and include: Turtle Beach (HEAR), Alibaba (BABA), Cigna Corp (CI), Marathon Petroleum (MPC), Amarin Corp (AMRN), and Teladoc Health (TDOC).
FINSUM: These are diverse picks both in terms of geography and sector. Amarin and Alibaba are the most interesting for us. The former because of buyout rumors by Pfizer, and the latter because of its strong growth characteristics.
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.
It has been a long time since value stocks have performed well. For about a decade, growth stocks have handily outperformed growth. However, the stage may be set for a long awaited rebound in value shares. One thing that may help is that shares fell so much to end the year, which has put many even strong companies in significantly discounted positions. The sign that may show it is time for value to shine is that the valuation gap between the market’s most expensive and cheapest stocks has reached its highest since 2008. This is a good indicator that value stocks are likely to rise.
FINSUM: Many analysts have been calling for a resurgence of value stocks for years and it has not happened. That skepticism aside, we do feel more positive about the possibility this time around.
Stocks got wounded very badly in the last quarter of the year, with many stocks entering deep bear markets. Many analysts think stocks are in for a good year, so many feel it is a good time to buy. So what are the best rebound picks for 2019? Sector-wise, it might be best to look at IT, energy, communication services, and utilities. In terms of individual names, consider Noble Energy, Conagra Brands, Alexion Pharma, American Airlines, Electronic Arts, Norwegian Cruise Lines, Tiffany & Co., and Citigroup.
FINSUM: Quite a diverse list! But then again, that is what happens when the S&P 500 falls 20%--there are a lot of wounded stocks to choose from.
The big market rout has left no shortage of stocks trading at large discounts to their previous valuations. The important question is which ones are actually a good value given the eruption in markets. With that in mind, here are four well-known names to take a look at. They are General Motors, CVS Health, Macy’s, and American Airlines. GM and AA are trading at near 5x earnings, the latter despite a thriving business. AT&T is interesting too, as shares have fallen 20% in the last year, and the dividend has swelled to 6.7%.
FINSUM: This seems like a good chance to pick up some healthy stocks that have been heavily dented by a selloff, but are poised to recover. We particularly like American Airlines and AT&T.
McDonalds has been slowly reinventing itself over the last few years. Big menu changes and and healthier items have been a major part of that shift. Now the restaurant chain is doubling down on one its recent focus areas—breakfast. A few years ago McDonalds decided to make a handful of breakfast items available all day. The change was a hit with customers and investors and helped grow sales for the year. However, recently, McDonalds has blamed it for slowing sales as its morning business has actually weakened because consumers can get breakfast items all day. Now it is changing its tact by offering breakfast sandwiches starting at just a Dollar and offering extra-meat breakfast sandwiches all day.
FINSUM: It seems all day breakfast has cannibalized some sales for old Mickey D’s. The dollar menu approach in the morning should help.
Walmart has taken a pounding this year. The stock is down 8.4% even though it has seen solid earnings performance. The reason why? Shares first got beat up early in 2018 when investors worried its digital strategy wasn’t taking hold. Then in the middle of the year worries about margins cropped up. Finally, in November, shares saw losses even though Walmart beat earnings and raised payouts. Interestingly, the shares were a counterpoint to the rest of retail, which saw gains for much of the year.
FINSUM: We think Walmart is a great buy. It has good same store sales momentum and its ecommerce operation is growing rapidly. This seems like a good buying opportunity to us, especially as the brand sells consumer staples, which will hold up even in an economic downturn.
How do you know when the market is bad? When the safest stocks are also the best performing. It sounds like an old market joke, but it couldn’t be more true right now. Stocks are down around 10% this month, the worst December since the Great Depression. A good sample of these low volatility stocks can be found in Invesco’s S&P 500 Low Volatility ETF (SPLV). That ETF has fallen just 7% from the market’s September peak, while the S&P 500 has fallen 16%. Looking at correlations, the majority of stocks with the best 90-day momentum are also those with the lowest volatility.
FINSUM: The market is playing defense, and with good reason.
Are you looking for places to ride out the current storm in markets? It is a tough time to be doing so, as even traditional bastions of safety—utilities, healthcare, and consumer staples—have been deeply wounded lately. Here is one you probably haven’t thought of—Berkshire Hathaway’s stock. The captain of the Berkshire ship, Warren Buffett has long been a master of profiting in down markets, and with the company’s $100 bn in cash, the combination looks appealing. One CIO put it this way, saying “As a long-term Berkshire holder, this is the kind of environment that you hope for given all the cash … I love the risk-reward, embedded safety, and diversity of the earnings flows”.
FINSUM: Berkshire is not the kind of stock that is going to get hammered in down markets, and it would seem to have a lot of upside in such environments. Seems like a potentially good buy.
A lot of investors may be looking for stocks with good value at the moment. Stocks that are badly beaten up, but have good underlying businesses, can be prime buys during adverse market conditions. With that in mind, take a look at Nike. The sportswear giant has shed 16% this quarter and will release earnings later today. Investors’ skepticism will either be proven correct, or wrong. The thing is, the core business looks compelling. The company gave guidance in September that it was expecting currency-neutral revenue to grow 9%. One analyst summarized the stock this way, saying “buy Nike into earnings. Nike sales are gaining momentum and the company is gaining market share across channels and geographies.”
FINSUM: Nike has done an admirable job catching up to rivals recently, as well as in passing on rising costs to consumers. Our instinct is that this is a good buy.
Something interesting has been happening for value stock investors lately—value stocks have been outperforming. Value investing as a discipline has been suffering for at least a decade as growth stocks won out. The malaise has been so poor that many have given up on the philosophy altogether. So with the recent turnaround, should that be reconsidered? Barron’s says the answer is a firm “no”. The recent outperformance of value may just be an aberration related to movements in particular sectors. The reality is that most value indexes have little exposure to the sectors that are suffering, like tech and consumer discretionary. Therefore, their outperformance is more a coincidence than a turn in the market.
FINSUM: We’d have to agree with this view. It does not seem like there has been some fundamental change in investors’ thinking, more that anxiety has just struck the most growth-oriented sectors.
If you think the market has been bad overall, take a look at the asset management sector, which has been brutalized in the last few weeks. The S&P index of asset managers has fallen 14% this month, compared with a 9.3% drop for the market overall. That adds to a lot of pain already this year—the index has lost almost 25% of its value in 2018 and is headed for the biggest loss since 2008. Some, like leader BlackRock, have been hit very hard just this month with shares down 17%.
FINSUM: Weak fees and poor fund flows are the immediate problem, but they are a major issue because they support investors’ fears of disruption in the industry.