By nature, I am an optimist, but I would like to think I temper that with a healthy dose of realism. I would love to see a return to "before the pandemic", notes Kelley Wright, value investing expert and editor of Investment Quality Trends.
Rather than bury you with statistics, let’s just suffice it to say that with the myriad challenges for small businesses, state and local governments, and for those whose stimulus payments have stopped, it is difficult to see how economically things will return to normal any time soon.
If government does remain divided, I believe you can forget any $3 trillion stimulus package. That isn’t good news for a lot of different groups. If there are additional widespread shut downs, those will put even more pressure on some already struggling groups.
Of course, the market is not the economy and the economy is not the market. The market peers into the future to make bets today. With that being said, the market either sees something the rest of us can’t or it is just betting that the Fed will keep priming the pump.
Both the Dow Industrials and Utilities are squarely in the low-yield area we call Overvalued. What this tells us is that the broad market has reached a point in price where the yield no longer represents historically good value.
In practical terms it means that an environment exists where historically the broad market has stopped advancing. It is important to differentiate our Select Blue Chips from the broad market.
Accordingly, do not liquidate your entire portfolio. However, you should take stock of your portfolio to see if you have any positions that have reached their low-yield Overvalue area and consider whether it is time to take profits to preserve the hard earned capital appreciation.
Also, as always, if there are Undervalued stocks that meet a need in your portfolio, by all means go ahead and pick them up. Stocks in the Undervalued area have the least downside risk and greatest upside potential no matter the condition of the broad market.
The Timely Ten represents our top ten recommendations from the Undervalued category each month. We offer this portfolio for investors who are looking to build a portfolio from scratch, are partially invested and looking to add new positions, or are fully invested and merely in need of some affirmation and hand holding.
Here are our current Timely Ten stock recommendations:
State Street Corp. (STT) — yielding 3.04%
Philip Morris International (PM) — yielding 6.32%
VSE Corp. (VSEC) — yielding 1.10%
CVS Health (CVS) — yielding 2.82%
Reliance Steel & Aluminum (RS) — yielding 2.12%
Tyson Foods (TSN) — yielding 2.69%
Cardinal Health (CAH)— yielding 3.38%
Bank of NY Mellon (BK) — yielding 3.20%
Washington Federal (WAFD) — yielding 3.63%
Northern Trust (NTRS) — yielding 3.08%
