Don't Ignore These Large-Cap Buys

03/11/2011 11:06 am EST


Mark Salzinger

Editor and Publisher, The No-Load Fund Investor

Several large-cap US companies are performing quite well, and are attractively priced, but only now are they beginning to get the attention they deserve. Mark Salzinger, of the No-Load Fund Investor, shares some of his favorite ways to tap this sector.

We’re in what seems like a good recovery here, and it also coincides with the 2012 presidential-election cycle. What’s your take on the US economic outlook, and for the stock market?

I think it’s clear that the US economy is improving. So far, we’ve had great corporate performance, and I hope and expect that will translate somewhat into better employment growth. It won’t be strong enough for a lot of people’s desires, but I think we’ll get some in 2011.

In terms of the market, I think that the US can have quite a decent year. In fact, I’ve been advising newsletter subscribers and managing client accounts more toward the US, and away from international—especially emerging—markets.

Within the US, I also think there’s going to be a shift—finally!—from lower quality, smaller cap, less diverse companies—which have been so good since the March 2009 bottom of the market—toward very large cap, attractively valued, maybe slightly boring companies. Ones that have really been ignored over the past two years, despite having quite good earnings.

Do dividends come into play at all with that large-cap sector?

They do. I wouldn’t say that you should look for the stocks that have the highest yields, necessarily. But I think most of those high-quality companies have an excellent total-return prognosis, in my view, because they have 2%, 3%, or even 4% dividend yields.

How does an investor play that? Are there any ETFs that are attractive to you?

Certainly. One that I’ve recently added to some model portfolios in my ETF newsletter is Vanguard Mega Cap 300 Value Index ETF (NYSE: MGV).

It has a lot of financial stocks, which are in a good phase because you have a growing economy, but you have low short-term rates and rising longer-term rates. And it has a lot of energy, which is a very good secular play, I believe.

The ETF in general has a P/E of something like 13 or 14, and very strong finances, and is showing improving momentum over the past couple of months.

In the mutual-fund world, there are some outstanding funds that haven’t had the best time of it since 2009, but that I think have very good prospects this year.

One of those would be Artisan Value (ARTLX), which invests in a lot of companies with absolutely low valuations—10 or 11 P/E ratios, and high quality business franchises, and good market environments for the future. I noticed the momentum there is also improving a lot.

Are you worried, looking down the road, that corporate profit—the year-over-year comparisons—aren’t going to look so great?

Yes, I am. I believe this will be a growing problem over the next several years—but not so bad for 2011. I incorporate all of that in my recommendations and actual investments.

So, for example, I’m avoiding consumer-staples companies, because oil and other commodities are big inputs to some of their products—yet they can’t, in the US at least, pass those input-price increases onto the end retail consumer.

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