2016/03/23

22 Of The Best Stocks In The S&P 500

After the horrible terrorist event in Brussels this morning, one would think markets would have sold-off hard.  But stocks recovered the losses in the U.S.  And yields closed higher, instead of moving lower (which would be expected after a terrorist event, as global capital tends to move into the safety of U.S. Treasuries).

The reason is simple: Short of an event that would destabilize the world and knock the global economy off the path of slow recovery, stocks are the only game in town.
Despite what you may see in the media, or hear from people who make a living selling doomsday predictions, the stock market is still the most attractive place to invest your money.

Consider the alternatives.  Cash yields nothing.  Over sixty percent of the (once considered) “risk-free” government bonds in the world are yielding below 1%.  The 10-year treasury in the U.S. barely yields above inflation, with a bond price that will almost certainly fall in value in the coming years.  And hard assets, like gold, while being a top performer this year, went three straight years (2013, 2014, 2015) without a positive return.

Stocks, on the other hand, offer the potential to return multiples of inflation,with dividend yields above the 10 year treasury.  And if you’re selective, in this market, you get to own a piece of dominant franchise at a discount.

We ran a screen for companies in the S&P 500 that have a dividend yield over 2% (that’s currently higher than the 1.93% yield on the 10-year treasury) and is considered a “wide moat” company (meaning a market leading company) with a P/E under 15 (a P/E lower than the overall S&P 500) and a return-on-equity of over 20. The return-on-equity metric is a simple way to find highly profitable market leading companies.

We found 22 stocks in the S&P 500 that met the above criteria.  Most of the names are blue chip or household names, like Ford, Gap GPS -0.69%Dow Chemical DOW +0.04% Harley Davidson, IBM IBM -0.56%, GM, Verizon and Macy’s.
By no coincidence, many of these stocks are already owned by top billionaire investors and hedge fund managers Warren Buffett, David Einhorn, and Dan Loeb.
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