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Investors Should Rotate to Value Stocks Now

Investors Should Rotate to Value Stocks Now

By    |   Friday, 19 April 2019 09:53 AM

The past few weeks have seen stocks inch back to those all-time highs they were at last September. If we go higher from here still, that’s great.

But the market is only the sum of its parts. Some stocks are where they were during the last peak. Others are higher, and others are lower.

A few blue chips have been surging like penny stocks in the past week, and are far higher than they were back in September.

One such blue chip is The Walt Disney Company (DIS). The entertainment giant announced its streaming service, Disney+, and the market loves what it’s heard. That’s sent shares to a new all-time high. And it’s taken the stock from a $95-115 trading range into the $130’s, possibly to establish a new trading range.

Given how the streaming service will take time to play out however, there isn’t as much value in shares as there were. It may be better to take some money off the table here, either by selling shares or by selling call options against shares for extra income.

Another company making big moves is Qualcomm (QCOM). Following opening statements in a jury trial with Apple (AAPL) this week, both companies agreed to settle their issues. Qualcomm is getting paid the royalties they’re owed, and both companies have entered into a new agreement for a six-year term. Even better, following that news, Intel (INTC) announced that they wouldn’t compete with Qualcomm by making 5G chips for mobile devices. Shares of all three companies are up this week.

While blue chips are helping to drive the index back to all-time highs, investors should be wary of chasing these companies higher—as with any big company jumping more than 10 percent in a single day. That kind of trend isn’t sustainable, no matter how attractive it may look to jump in.

What should investors do right now instead? At the risk of sounding like a broken record, the best thing is to take some profits in positioned that have rallied and add them to stocks that haven’t quite gone along for the ride. Plenty of companies are below where they traded last September, and if you get into foreign stocks or the commodity space, there are even a few companies at multi-year lows that look attractive.

For instance, following decent, but not exceptional earnings, pipeline giant Kinder Morgan (KMI) just bumped up its dividend payment and now yields over 5 percent. That’s well below the yield it had when it was structured as an LP and not a traditional corporation, but an LP is required to pay out nearly all its earnings to shareholders. Many energy and pipeline companies have been switching to a more understandable corporate structure, and the rally in the energy markets that started in early 2016 is slow but manageable.

Or there’s a chance to get a great 5-percent-plus yield right now in Newell Brands (NWL). The company, maker of everything from Coleman lanterns to Mr. Coffee coffeemakers, owns a variety of brands. They’re currently in a streamlining phase, and have made some big write-offs in recent quarters that the market hasn’t liked. Nevertheless, the company appears worth far more than the sum of its parts, and looks like an attractive “rotate to value” play here.

In the commodity space, market greed is causing gold prices to melt. Gold, like any form of insurance, is cheaper when it isn’t needed. When it is needed, the price tends to be much dearer. Investors looking for a hedge play against today’s calm markets can look to gold.

They can also look to the cryptocurrency market, which continues to show signs of life. And, like some beaten-down stocks, it’s something of a “rotate to value” play now too. Like gold, however, bitcoin and the other cryptocurrencies don’t have any discount cash flows or other ways to gauge a value.

But we can tell from looking at the price action that the cryptospace has stopped falling after about an 80 percent peak-to-trough decline. Typically, that level of a correction leads to better returns over time.

So while a few big-name companies are helping the market get back to those attractive-looking headlines about all-time highs again, remember, there’s always a better value elsewhere.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

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The past few weeks have seen stocks inch back to those all-time highs they were at last September. If we go higher from here still, that’s great.
value, investor, rotating
Friday, 19 April 2019 09:53 AM
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