A dramatic shift is taking place in the market as value stocks continue to heat up, and it’s creating some attractive opportunities, so long as you stay disciplined and focused on your goals. This week’s Weekly shares some specific attractive opportunities, as well as our advice on how to win in this market.
For perspective, this first chart shows how growth stocks (i.e. expensive, often 0% dividend paying, growth companies) have been dominating value stocks in recent years.
However, this next chart shows a dramatic shift is starting to take place over the last month, whereby the tide has been turning in favor of value stocks, a trend which some investors believe is long overdue and could continue for an extended period of time.
We have some advice on how to play this shifting tide in our “part 1” conclusion, below. But first, some specific attractive investment opportunities right now.
Last Week’s Weekly:
Last week’s Blue Harbinger Weekly shared a few attractive big-dividend energy stocks (see: Top 5 Big Safe Yields (Energy Sector)). Energy is one of the more “value stock” sectors of the market, and it has been the worst performing market sector so far this year. Nonetheless, it’s actually been outperforming the S&P 500 over the last month and there are currently some very attractive opportunities in that sector, as we descrided in the link provided above.
Stock of the Week:
Last week we actually had two “Stocks of the Week,” they were both in the energy sector, and you can read those full reports here:
This week’s Stock of the Week is a big-dividend preferred stock that is also worth considering:
Income-Generating Options Trade:
Last week our income-generating options trade was rolled up into our top 5 big safe yield energy stock list, whereby we shared a put option idea on big-dividend energy company BP. Here is that link with that specific idea again. And for reference, you can view the headlines for a few of our recent members-only options trade ideas here. Further still, the members-only “part 2” version of this report shares a few ideas as to what may be a few attractive options trades this upcoming week. For reference, one of those ideas may be selling income-generating, out-of-the-money, put options on Ares Capital (ARES) which was down significantly just last week (and that type of volatility usually leads to some attractive premium income opportunities). We wrote up a recent free article on Ares Capital here:
Conclusion (Part 1):
Before we get into the members-only part 2 version of this report (where we share the recent performance of each of our current holdings, plus a few more attractive investment ideas), we have some important investment advice for you to consider. Specifically, the market has been slightly more volatile and rotating lately. More specifically, value stocks have been starting to make up some ground on growth stocks—a trend many investors believe is long overdue. However, before you go haphazardly chasing all value or all growth stocks, consider this. Prudently-diversified, goal-focused, long-term investing has proven to be a winning strategy over and over again throughout history. And it has most certainly proven a far better strategy than trying to time the market (no one really knows what’s going to happen in the market today, tomorrow or two months from now). The best investment advice you’re going to get (from anyone) is to know your goals, and then stick to an investment strategy that is consistent with those goals. It’s okay to be opportunistic on the edges (e.g. for rebalancing purposes, and/or when an attractive opportunity presents itself). But for goodness sake, don’t bet the farm because you think you’re going to perfectly time the size and extent of some big style rotation in the market. Instead, just pick good investments, that are consistent with your goals, and then hold on to them for the long-term. It may sound simple, but it’s absolutely a winning strategy.
Part 2:
In this part 2 version of The Blue Harbinger Weekly, we review the recent performance of each of our holdings, we share a few more attractive investment opportunities, and we conclude with more sage advice.
Holdings/Performance:
For starters, here is a look at the recent performance (over the last week and various other time periods) of our current portfolio holdings
To access a downloadable Excel version of the above tables (including the additional names on our watch list, please click here.
One thing you may notice about the performance of our holdings over the last week, is that many of the holdings in our Income Equity strategy have performed better than many of the holdings in our Income Via Growth strategy. And this makes sense in terms of the sector rotation we’ve been seeing from Growth to Value stocks. You might also notice the higher betas (the last column of the above tables) for the Income Via Growth stocks versus the Income Equity and the Alternative Fixed Income portfolios. Generally speaking, beta is a measure of volatility and the extent to which an individual stock tends to rise and fall in correlation with the overall market (such as the S&P 500, as a “benchmark” example, has a beta of 1). The higher beta stocks have been putting up better returns than the lower beta stocks in recent years, but that has changed in favor of value over the last month.
Investment Opportunities:
In addition to the ideas shared in part 1 of this report, we share a detailed report with members-only on the big-dividend preferred shares of Teekay Offshore (TOO-B) which we currently own in our Alternative Fixed Income portfolio (see above). In particular, the report notes that these shares are among the riskiest we own, and there are a few significant risks you should be aware of if you’re going to own the shares. Here is the report:
Upcoming Income-Generating Option Trade:
In addition to the Ares Capital idea (mentioned earlier in part 1 of this report), big-dividend paying Energy Transfer (ET) is another attractive name that sold-off last week. We recent wrote about Energy Transfer in detail (see link below), and it’s one of the stocks upon which we may place an income-generating options trade on, this upcoming week, if market conditions remain attractive.
Other attractive names upon which to sell income-generating put options are many, if you’re willing to venture in to the low (or zero) dividend yields of the stocks in our Income Via Growth strategy. Attractive names that just sold-off this last week include ServiceNow (NOW), Shopify (SHOP) and Paylocity (PCTY). These are attractive businesses that got caught up in the recent growth stock sell-off. However, almost regardless of what happens in the overall market, these businesses have tremendous long-term value.
Conclusion:
Market leadership has shown signs of rotating to value instead of growth. However, it’d be a mistake to bet the farm on growth or value if it is not consistent with your long-term goals. Specifically, it’s better to buy attractive individual businesses that can perform well almost regardless of stock market conditions, so long as it helps you meet your goals. Similarly, it’s silly to put 100% of your nest egg into the volatile stocks market if you have significant upcoming liquidity/cash needs on the near horizon. Most importantly, know your goals as an investor, invest according to your plan to meet your goals, and don’t let the market timers and media punditry distract you or frighten you into making mistakes. Stick to your prudently-diversified, goal-oriented, long-term investment strategy without getting caught up in fear or greed. It’s a well-proven strategy for success.