Tags: value | investing

Siegel: Value Investing Not Dead

By Dan Weil   |   Thursday, 06 Aug 2009 10:33 AM

While some experts have criticized value investing since the financial crisis, distinguished University of Pennsylvania economist Jeremy Siegel still sings its praises.

“Research is very clear that value investing, or high dividend investing, is the best long-run investing style that you can adhere to,” he tells Moneynews.

“Certainly the last couple years have been rough for dividend investors with the financial collapse that we had. … But what might surprise people is that dividend paying stock portfolios have done extremely well during that period.

“What also might surprise investors is that outside of the financial sector, we’ve actually had dividend growth.”

Thus, Siegel concludes, “Dividend investing isn’t dead. It took a hit with financials, which I think are definitely coming back. So I’m looking for a bright future for dividend paying stocks over the next year or two.

“What’s really attractive about dividend yields right now is that they’re above the interest rates we can get at the bank by quite a wide margin.”

As for specific stocks, Siegel recommends Johnson & Johnson, Wal-Mart, and Target. In terms of industries, he likes consumer staples, pharmaceuticals and oil shares.

He’s less enthusiastic about the technology sector. “The sand shifts so quickly,” he says.

“People get overexcited about those stocks and send them to too high a price. In the long run, the technology sector hasn’t been a consistent performer.”

To be sure, “If you get on the ride when they’re doing well, you can do fine,” Siegel says.

“But if you don’t get off, you’re apt to be disappointed in their returns. I’m not saying they’re overvalued. … (But) I think value stocks are going to be the winners in this next bull run.”

The next 100 years will “most certainly” be as good for America as the last 100, Siegel says. “Major growth will be in Asia. … But that doesn’t mean that American companies can’t take advantage of that growth.”

Siegel warns investors not to be “mesmerized” by the high economic growth of emerging markets. “Many of those high growth countries have overvalued stock markets,” he says.

“That was certainly true of China a year, 1 1/2 years ago. They came down very dramatically, and I think became a good value again, but you have to watch out. … You must look at value all the time.”

Still, “I am enthusiastic about emerging economies. I think they will be good investments going forward,” Siegel says.

“Right now the valuations are reasonable. They’re coming up. They were overvalued, particularly China, two years ago. They’ve come down. … I think they will be probably be the leading group of stocks over the next year or two.”

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