It took a big rebound over the final week of the month to cut the average loss for stocks in the broad-based Russell 3000 index to 5.7% during March. But the long-term trend for stocks is higher, and Gen Digital (GEN) is an attractive way to capitalize, advises John Buckingham, editor of The Prudent Speculator.
Value stocks like those that we have long favored enjoying average annualized returns of 13.2% since 1927, but ups and downs have always been part of the investment process. In fact, history shows that Value Stocks have lost ground on a one-month basis 36.8% of the time.
But that also means that 63.2% of months have been positive. Hold for 12 months and the chance of losing money drops to 26.9%, with red ink shrinking to 12.5% for three-year, 3.4% for seven-year and 0% for 15-year periods. Risk can be mitigated simply by lengthening one’s time horizon.
Of course, those who pay attention to the short-term fluctuations know that the equity markets have had plenty of gyrations this year. The drama really heated up on March 9 after an exodus of deposits via a modern-day electronic bank run at Silicon Valley Bank led to the lightning-quick collapse of that institution.
Washington appears to have been successful in stemming depositor panic as net outflows from regional banks have slowed to a trickle. Plus, we think today is different from the Great Financial Crisis as banks are far better capitalized and the three banks that failed had unique profiles not present at other institutions.
In sum, we are always braced for downside volatility. But with valuations reasonable for stocks in our portfolios and the Fed likely near the end of its tightening cycle, we expect to be rewarded for being greedy while others are fearful.
GEN is a stock we like for our Millennium Portfolio. Previously known as Symantec and NortonLifeLock, the company provides cyber security solutions for consumers around the world, which enable consumers to protect their devices, online privacy, identity and home networks.
Shares plunged in Q1, while the aggregate IT sector posted strongly positive returns. Yet the company’s Avast PLC acquisition is complete, and management expects to benefit from synergies and cross-selling in upcoming quarters.
Avast’s customer retention is about 20% lower than the 85% rate enjoyed by Norton and LifeLock products, which management expects to improve through product innovation and growing membership adoption. Analysts expect GEN earnings per share to grow from $1.75 in fiscal 2022 to nearly $2.60 by 2025, which would put the 2025 P/E around 7. GEN shares yield 2.9%.
Recommended Action: Buy GEN.
