With apologies to Andy Williams, we are now in the most wonderful time of the year — the seasonally favorable six-month period for stocks, observes John Buckingham, value-oriented money manager and editor of The Prudent Speculator.
There is no assurance that the six months will produce stellar gains, and we need go back only one year to see red ink. The most recent November through April total return span was lousy. However, over the last three decades, the Halloween-to-May-Day returns for the Russell 3000 Value index have been negative only six times.
We've also looked at the historical returns between Value stocks and Growth stocks, as well as between Dividend Payers and Non-Dividend Payers for the May-October and November-April periods.
Based on monthly portfolio returns as calculated by Professors Eugene F. Fama and Kenneth R. French, equities of all shapes and sizes have performed best from November through April, with the most wonderful returns, on average, favoring Value no matter the time of year and Dividend Payers enjoying a much more consistent ride.
We realize that it is hard to stay disciplined as the siren songs of the doom-and-gloom purveyors are not easy to resist, with many making seemingly sound arguments. No doubt, downturns are part of the investment process as 5% pullbacks happen three times a year, on average, 10% corrections occur every 11 months, on average, and 20% bear markets take place every 3.4 years, including this one.
However, despite what investors have endured this year, whether the worry is prior periods of rising interest rates, higher inflation rates, Fed Tightening or the lead up to/the aftermath of recessions, equities have performed well, on average, with Value usually leading the way. And every scary event throughout history has been overcome in the fullness of time.
Believe it or not, the annals offer additional good news these days courtesy of Washington DC. We must always be careful about drawing significant conclusions from a small number of data points, but over the past nine-plus decades the S&P has managed a superb geometric average annual total return of 15.9% in the third calendar year of the Presidential Cycle, with 1931 and 1939 the only two years in the red.
For those who are looking to start their festive season shopping early, we think that there are plenty of attractive individual stocks worthy of purchase, but we offer a dozen of our favorites. Each has been marked down considerably this year, while they all sport inexpensive valuation metrics and dividend yields above 3%.
There can be no assurance that hearts will be glowing immediately with the 12 selections, so we offer the reminder that patience is paramount in Value investing, while we always advocate broad diversification. Indeed, our average holding period is measured in years while our Value Plus and Dividend Income managed account strategies contain upwards of 80 undervalued stocks.
Forgotten Financial Favorites
Banking giant Citigroup (C): Liking the turnaround under new CEO Jane Fraser
Insurance titan Prudential Financial (PRU): Rising interest rates should soon become a tailwind
Value-Priced Technology Picks
Semiconductor powerhouse Broadcom (AVGO): Superior integrator of a series of lucrative acquisitions
Data storage provider Seagate Tech (STX): Cyclically depressed long-term grower
Battered Communication Services Heavyweights
Media and television broadcasting concern Comcast (CMCSA): Inexpensive free-cash-flow juggernaut
Wireless telecom services provider Verizon (VZ): 5G Leader with 16 straight years of dividend hikes
Globally Exposed Industry Leaders Built to Last
European-focused staffing services provider ManpowerGroup (MAN): 70 years of profitably helping companies right-size their businesses
Home appliance king Whirlpool (WHR): Tremendously profitable owner of an iconic brand portfolio
Punishment Doesn’t Fit the Crime Consumer Names
Athletic footwear and apparel retailer Foot Locker (FL): Still highly profitable and buying back stock hand over fist
Toy and game maker Hasbro (HAS): Positioned for long-term growth with a focus on fewer, bigger brands, expanded licens- ing and branded entertainment
Beaten-Down Marquee Names
Paper and packaging products maker Int’l Paper (IP): Inexpensive long-term e-commerce (shipping boxes) play priced at cyclical lows
Medical device pioneer Medtronic (MDT): Supply-chain and COVID-19 thunderstorms should dissipate in the fullness of time
Certainly, we respect that building out a portfolio, maintaining discipline through thick and thin, and consistently making changes to opportunistically take advantage of individual stock price movements is easier said than done.
We are always braced for downside volatility, but we have never wavered in our belief that the secret to success in stocks is not to get scared out of them. We think the Lao Tzu quotation is apt, “If you do not change direction, you may end up where you are heading.”