We are braced for volatility, but our enthusiasm for the long-term prospects of our broadly diversified portfolios of what we believe to be undervalued stocks remains intact, asserts John Buckingham, money manager and editor of The Prudent Speculator.
With reasonable valuations for the majority of stocks, very low interest rates, an improving economy and an accommodative Fed, we think that equities in general are still attractive, with value stocks particularly appealing.
Value stocks, per data from June 1927 through December 2020 compiled by Professors Eugene F. Fama and Kenneth R. French, have won the long-term performance derby over Growth by a score of 13.0% to 9.9% per annum.
And, via a separate data series, the duo has calculated that Dividend-Paying stocks have outperformed Non-Dividend-Payers by a per-year tally of 10.6% to 9.2% over the same nine-plus decades. Those return gaps are large, especially when one considers the impact of compounding over multi-year periods.
It is little wonder, then, given our multi-year time horizon, that we remain loyal to our four-plus-decade-old strategy of buying and harvesting portfolios of what we believe to be undervalued stocks, most often of dividend-paying companies.
Alexandra Real Estate (ARE) is a REIT that owns, operates and develops lab space for life science research in primary U.S. markets. Given secular trends, we expect life sciences to continue to grow at a high rate, and we see Alexandria as the premier name in the space.
We see ARE’s base of tenants as defensive and expect both public and private capital to continue to flow into biomedical research. We were encouraged that ARE collected 99.2% of January rents.
Alexandria is well-capitalized, with no debt maturities prior to 2024, while the dividend payout for 2020 was 6% higher than in 2019. The yield is now 2.6%.
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General Dynamics (GD) is three parts defense contractor and one part business jet manufacturer, generating a bit more than two-thirds of its revenue from various governments (mostly Uncle Sam).
The business is characterized by a top-tier business jet segment with its Gulfstream franchise and long-dated, highly visible marine systems revenue.
Firmwide, GD now boasts a record-high backlog of $89.5 billion (backed by two Columbia-class submarine contracts and an Abrams tank upgrade contract), which ought to provide nice visibility into future quarters, even if the defense budget remains relatively flat.
Shares trade at an attractive forward P/E of 13.5 (more than a 50% discount to peers) and offer a healthy dividend yield of 3.0%.
Verizon Communications (VZ) is an integrated telecom company that provides voice and data services to wired and wireless retail, business and government customers. Management is calling for 3% revenue growth in 2021 and EPS between $5.00 and $5.15.
As the 5G buildout charges ahead and customers upgrade their devices to take advantage of very fast 5G speeds, Verizon’s investments in its leading nationwide network should pay off nicely. VZ boasts a forward P/E of 11 and a generous yield of 4.6%.