Now is the time to consider value stocks for your portfolio as the U.S. economy gathers strength and as promising coronavirus vaccines and treatments are deployed.
John Buckingham, editor of The Prudent Speculator investing newsletter, has done for this column a special screen of stocks with value characteristics. That led to a list of 30 companies that meet a host of quality standards and have dividend yields that are at least three times as high as the yield on 10-year U.S. Treasury notes
Their share prices have declined in 2020, hurt by economic pain.
The Prudent Speculator is published by Kovitz Investment Group of Chicago. Kovitz manages about $5.4 billion, mainly for private clients, but also through the Al Frank Fund
which is rated four stars (out of five) by Morningstar.
In an interview, Buckingham said: “If you had been at the start of the year listing these events — the pandemic, shutdowns, the worst economic downturn since the Great Depression, then social unrest, then a heated election in which the loser doesn’t concede — you might have expected a tough market this year.”
The average stock from peak to trough was 40% at one point. Still, the S&P 500 Index
is up about 11% for the year, having rebounded since the March lows.
“Hopefully this will remind investors that equities are a great place to be with long-term money. If you can survive this and 2008, and didn’t panic and sell, you are probably well set in your asset allocation,” he said.
The Prudent Speculator team manages several portfolios with slight differences because of variations in money flows in and out. Its main strategy, the Prudent Speculator Portfolio, has the highest 30-year ranking among newsletters tracked by the Hulbert Financial Digest, with an average annualized return of 16.3% through Oct. 31, compared with an average return of 10.5% for the S&P 500 (including reinvested dividends), according to FactSet.
The Prudent Speculator holds about 80 stocks selected from a group of about 3,000 that are publicly traded in the U.S., including about 200 American depositary receipts. The initial list is pruned to about 2,800 to make sure the group has sufficient liquidity.
Then a set of proprietary screens are applied to identify stocks that are “potentially undervalued,” relative to the market. A set of “deeper quantitative” factors — cash levels, total debt, debt maturities, debt service costs, capital expenditures and profit margins — narrows the list further. The Kovitz team then considers qualitative factors, such as brand positioning, management, intellectual property and the quality of companies’ financial reporting.
When compared to the Russell 3000 Value Index XX:RAV, the resulting portfolio has a heavier allocation to the information technology and consumer discretionary sectors, and a lighter allocation to utilities and financial stocks.
The Prudent Speculator Portfolio had a forward price-to-earnings ratio of 14.7 as of the close on Nov. 23, compared with a forward P/E ratio of 22.8 for the Russell 3000 Value Index, according to Kovit’s data.
30 dividend stocks
The following 30 stocks were described by Buckingham as “undervalued bargains.” All were down for 2020 through Nov. 23, with yields at least three times as high as the yield on 10-year U.S. Treasury notes
The list is sorted alphabetically by ticker:
||Cisco Systems Inc.||3.46%|
||CVS Health Corp.||2.99%|
||Physicians Realty Trust||5.19%|
||EOG Resources Inc.||2.98%|
||General Dynamics Corp.||2.93%|
||Holly Frontier Corp.||5.75%|
||Hewlett Packard Enterprise Co.||4.34%|
||International Business Machines Corp.||5.43%|
||Juniper Networks Inc.||3.65%|
||J.P. Morgan Chase & Co.||3.05%|
||Leggett & Pratt Inc.||3.66%|
||Lockheed Martin Corp.||2.80%|
||Merk & Co.||3.24%|
||Pinnacle West Capital Corp.||3.93%|
||Prudential Financial Inc.||5.73%|
||Regency Centers Corp.||4.91%|
||Truist Financial Corp.||3.83%|
||Total SE ADR Class B||5.76%|
||Tyson Foods Inc. Class B||2.82%|
||ViacomCBS Inc. Class B||2.77%|
|Sources: Kovitz, FactSet|
Here is another set of data for the group:
If you see individual stocks of interest in this or any other list, you need to do your own research and form your own opinion about companies’ ability to remain competitive over the next decade. You can get started on that by clicking on the tickers in the first table.