August 7, 2014 at 11:54 AM
It’s an expensive stock market today, what with equities in the sixth year of a bull market. We’ve gone 32 months without a pullback of 10% or more. Valuations are up relative to the last 50 years. The dividend yield is lower than.
To stay in the game, search for value while looking for superior dividends, earnings, sales and cash flow per dollar invested. Gravitate towards out of favor sectors, confident that the market’s cyclicality will eventually bring the unloved back in favor.
Our second half selections follow:
Big Blue’s ace in the hole is its consulting division. While the latest and greatest technology provides the headiest margins, consulting’s long term recurring revenues avoid the booms and busts. The brand remains top notch; even today, no one gets fired for hiring IBM. Valuations are attractive; the stock trades at just nine times forward earnings.
Cisco is the industry leader in routers and networking devices for access to the Internet. It initiated its dividend in 2011 and has grown it by a factor of three; the current yield is 3.1%. Cisco represents an attractive combination of value and growth. A possible departure of its CEO John Chambers could also positively influence the stock, as some believe he’s overstayed.
Avon Products (AVP)
Avon’s legendary business model and brand name fell into disrepair under prior management. Shareholders can benefit several ways. First, we think Avon has several solid initiatives to improve growth, including improving the technology infrastructure. Second, part of Avon’s malaise has been the perceived slowdown in the emerging markets. We think the long term outlook for the emerging markets is generally strong. Third, Avon’s battle against charges under the Foreign Corrupt Practices Act is coming to an end.
Rio Tinto (RIO)
London-based Rio Tinto is one of the largest miners in the world, operating mines primarily in North America and Australia, extracting copper, iron, and aluminum. Investors, not concerned about inflation, have shunned natural resources stocks. In addition, the decelerating growth in China, a big consumer of raw materials, has weighed on sentiment.
Rio Tinto is a contrarian pick that will ultimately prove profitable.
Honda remains well positioned to make inroads in those areas of the world where fuel efficiency and value are important.
The US will remain an important market, with the average age of our cars close to an all-time high, at nearly 12 years. Technology may well accelerate sales, as buyers look for the latest gadgets to stay connected while driving. Others are looking for break through fuel technologies, whether to reduce a carbon footprint or to cut costs, or both. Honda is likely to be on the forefront.
Valuation wise, Honda is attractive. It’s been weighed down by the perception that it’s Japanese, and therefore part of the stagnant Japanese economy and stock market. However, 80% of its business is outside of Japan.
Newmont Mining (NEM)
We like Newmont for several reasons. First, it operates many mines in widely disparate areas, even continents. This diversifies the risk of political expropriation, floods, strikes, etc.
Second, not only does the company pay a generous dividend, changes in the dividend are based on changes in the gold price. That assures that profits from higher gold prices will be shared. The company has a strong balance sheet.
Note: David G. Dietze, JD, CFA, CFP™, is President and Chief Investment Strategist at Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Ave., Summit. The full-length version of this article, including a report on David’s January stock picks, is available at: http://www.ptview.com/files/ten%20for%20second%20half%20of%20fourteen%20article.pdf
CNBC has named Point View number 5 on its list of the top 100 American fee-only wealth managers. See http://www.cnbc.com/id/101619698