It is easy to be sanguine about stocks with the Dow at 39,000, but whether it is dysfunction in Washington, conflict in the Middle East, war in Ukraine or China/Taiwan tensions, we know that there is plenty to trouble investors. But we remain comfortable with stocks like Allianz SE (ALIZY), writes John Buckingham, editor of The Prudent Speculator.
Throw in the yield on the 10-Year US Treasury having risen from 3.88% at the start of the year to 4.27% two months later, the betting on the first Federal Reserve interest rate cut being pushed out to June, rich valuations for some stocks, or even the Kansas City Chiefs winning the Super Bowl, and we suspect some might be rethinking their equity exposure.
While we would argue that there have always been numerous bricks in the proverbial Wall of Worry that stocks long have been climbing, and downside volatility is always part of the investment equation, we think more peaceful slumber can be had by gravitating toward inexpensively valued equities.
After all, the TPS Portfolio sports a forward P/E of 14 and dividend yield of 2.6%, while we see corporate profits expanding this year, US GDP showing growth, and interest rates likely coming down. Many thrill-seekers are wanting to roll the dice these days, but we think the odds are now far more in favor of the Value investor.
Allianz SE (ALIZY)
As for Allianz, it is a 131-year-old global insurer and financial services firm that serves over 100 million customers in more than 70 countries. It is the world’s largest property and casualty insurer, as well as a major player in life and health insurance, while its Global Investors arm (including bond manager Pimco) is one of the top five active asset managers worldwide with over 2 trillion euros under management.
Record operating results led the board to boost the dividend payout to 60% of profits, up from 50% previously, and renew its share buyback program for up to 1 billion euros. In addition, higher yields stand to improve returns on float across the diversified insurance operation as well as the performance at its fixed income asset manager.
ALIZY trades for less than 10 times NTM EPS estimates. We think there is some room for multiple expansion (should ROE improve) to go along with the recent 3.2% net dividend yield.
Recommended Action: Buy ALIZY.
