Netflix announced lower than expected subscriber growth numbers after the market closed, and the shares are down more than 13% in afterhours trading. This is a good reminder of the volatility and risks of FANG-type stocks (Facebook, Amazon, Netflix and Google/Alphabet) which have been performing extremely well, but have very high valuations. This article contrasts FANG stocks with data on over 100 high-yield stocks that have sold-off significantly this year and may be worth considering if you are an income-focused value investor. We also highlight four of our favorite opportunities from the list.
Here is a look at the recent performance of FANG stocks (Facebook, Amazon, Netflix and Google/Alphabet) versus the S&P 500 (SPY) over the last 5 years.
Especially since the yield curve is increasingly forecasting a heightened chance of a recession considering it is close to inverting (i.e. long-term rates are almost lower than short-term rates).
The following table includes data on FANG stocks versus over 100 high-yield stocks that have sold-off significantly so far year-to-date.
One thing that stands out about FANG stocks in the table above (besides the sea of green in the performance columns) is the high valuations (e.g. high forward P/E's, high price-to-book values, and high price-to-dales ratios, to name a few). Plus the FANG stocks pay 0% dividends. And FANG stocks have high betas (above 1) which means they tend to sell of more when the market sells off. If you are an income-focused value investor, FANG stocks are not appealing to you on these metrics.
For more perspective, here is a look at growth and momentum stocks (characteristics typical of FANG) versus value and dividend stocks (green and red).
Value and Income have been underperforming, and if you are an income-focused contrarian (i.e. buy low, not high). Now is a good time to consider the 100+ non-FANG stocks in our earlier table because they all offer yields of at least 4% (some are much higher), and they've all declined at least 7% this year whereas the overall market (the S&P 500) is up 5.6% (total return) and FANG stocks are up significantly more.
For your consideration, we've highlighted 4 highly attractive stocks from the earlier performance table above.
1. Tsakos Energy Navigatgion (TNP)
Tskakos common equity shares are down more than 11% this year, and we believe these shares provide a very attractive risk reward trade-off. However, if you're not comfortable with the common equity, Tsakos offers a variety of preferred shares that are less volatile and offer higher yields. Of the preferred shares, we like the series E and F the best. You can read about our views in detail in this article:
2. CBL & Associates (CBL)
You can see CBL at the very bottom of our earlier table, and we included it because it's equity shares sold-off yesterday, and so did it debt. And in fact we are not interested in investing in the equity (too risky), but the debt is very attractive because it is much safer in our view and it pays big coupon payments, and it is trading at a discounted price.
We wrote in detail about the attractiveness of CBL bonds last month. The price has been climbing, but yesterday's sell-off provides an attractive entry point. Here is our full write-up:
3. A-Class Retail REITs
We mentioned above that we are not interested in owing the common shares (only the bonds) of retail REIT CBL because the commons shares are too risky, in our view. However, we do like the more attractive A-Class retail property REITs, such as Macerich (MAC), Taubman Centers (TCO) and GGP Inc (GGP).
You can see all three of these REITs have delivered negative returns this year in our table above and also the chart below:
From a price-to-book value, these REITs are simply getting to inexpensive, especially considering they continue to generate strong FFO and sales and rent per square foot.
4. Triton International (TRTN), Yield: 6.8%
Triton is the clear leader in the intermodal shipping industry (Triton makes the ubiquitous steel boxes on trucks, trains and ships), and it enjoys clear economies of scale. Triton also just announced a dividend increase less than 2 months ago (it raised the quarterly dividend to $0.52 from $0.45). Yet the shares have sold-off.
We wrote about Triton in detail in this article:
And we believe it's a "buy" at this level.
Conclusion:
It's often argued that fear and greed drive the market, and they can cause investors to take things to extremes. As dividend-focused value investors, we are contrarians, and we like to "buy low." We are certainly not arguing that Netflix and the other "mega-cap" FANG stocks aren't going higher from here (they may be going much higher), but they are volatile, and they could be causing too much stress and not enough income for investors.
For a little perspective, here is a look at a couple of the largest market cap stocks back in 1999 versus the big FANG stocks today:
We believe the four specific high-yield stocks highlighted in this article are attractive and worth considering, especially after their recent sell-offs.