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What to Buy Now If You're Worried

By Larsen Kusick, analyst, Phase 1 Investor
Monday, March 5, 2012

Well, that was fast.
 
In less than five months, the S&P 500 more than made up for all of last summer's losses. Since bottoming on October 3, the large-cap index is up 25%.
 
After that kind of big move, many smart traders – like my colleague Jeff Clark – are bearish. Long-term uptrends don't continue in a straight line. You'll always see "corrections" along the way.
 
As Jeff points out, if you're a short-term trader, you might be more comfortable on the sidelines. But if you've got a longer-term timeframe, I think you've got a good opportunity to buy into one of the year's safest trends. Let me explain...
 
While many stocks have surged off their October bottoms, one group of stocks has been largely "left behind."
 
They're big, cheap, and steadily growing their earnings... In most cases, they reward patient investors by paying a fat dividend... Even better, this group includes some of the best businesses in the world.
 
You see, "boring" sectors like health care, consumer staples, and telecom services tend to hold up even when the economy slows down. The tradeoff is that they don't benefit much from an improving economy... which is exactly what investors have been betting on in recent months.
 
Below is a list of large-cap companies in these sectors that haven't participated in the big rally. The performance column shows how they've done since the S&P 500 bottomed on October 3, 2011.
 
Company
Performance
Yield
Kellogg (K)
-1.2%
3.3%
General Mills (GIS)
0.6%
3.2%
Walgreen (WAG)
0.9%
2.7%
Kimberly-Clark (KMB)
2.1%
3.9%
Bristol-Myers Squibb (BMY)
3.7%
4.2%
Pepsico (PEP)
3.8%
3.3%
Johnson & Johnson (JNJ)
4.4%
3.5%
Colgate-Palmolive (CL)
5.2%
2.5%
Costco Wholesale (COST)
5.6%
1.1%
Verizon (VZ)
5.8%
5.2%
Procter & Gamble (PG)
6.1%
3.1%
Coco-Cola (KO)
6.4%
3.0%
Heinz (HNZ)
6.9%
3.6%
Eli Lilly (LLY)
8.3%
5.0%
AT&T (T)
8.8%
5.8%
 
As you can see, the best performer on the list lags the benchmark index by more than 15 percentage points...
 
This underperformance has nothing to do with business being bad. These are all high-quality companies that you'll find in the portfolios of long-term investors like Warren Buffett and Jeremy Grantham.
 
In other words, they're the kind of companies that attract investors who don't want to worry about short-term fluctuations in the economy.
 
I like to think of these names as "hype-free" companies. No broker will ever call one of his customers with a hot tip about Heinz or Kimberly-Clark. In my experience, investors aren't keen on stories about ketchup or diapers.
 
That's what makes these stocks perfect right now. If the market pulls back, you won't see anyone "taking profits" in these stocks. They may even benefit during a correction, as investors tend to put money into "safer stocks" when volatility jumps.
 
Finally, you shouldn't ignore the dividends here. Even a short holding period of three to six months can generate 10 times as much income as cash in a money market account.
 
And in today's "zero percent" world, more people are recognizing the power of solid dividend-payers. That's going to put a tailwind behind these names this year.
 
So if you've got a longer-term time horizon... and money you want to put to work right now... start with the list above.
 
Good investing,
 
Larsen




Further Reading:

Income investor Dan Ferris also searches out high-quality dividend-payers, like the ones Larsen discusses today. He calls them World Dominating Dividend Growers. These companies throw off the world's most reliable dividend streams... which is the major reason their share prices held steady while most other stocks were hammered in August. See how these super-safe companies can benefit you here: Three Charts Every Income Investor MUST See.
 
"Some investors may feel like they missed the boat if they weren't buying at the bottom a few months ago," Larsen says. "The truth is, investors almost never 'catch the bottom.' And there are huge gains to be had following the trend." See what sector you should concentrate on buying here: An Argument for Investors to Get Off the Sidelines.

In The Daily Crux
Market Notes
Long-term gold uptrend is intact... up about 20% in 12 months, despite a 9% pullback since last summer.
 
Silver and platinum are the best-performing commodities in 2012... up more than 20%.
 
No sign of a "bounce" in natural gas... prices are down 17% this year, despite bottoming in January.
 
"Safe" semiconductor names deliver... Intel and Taiwan Semiconductor Manufacturing are up 25% over the past year.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1374.09 +0.6% +5.2%
Oil (USO) 40.77 -2.4% -1.5%
Gold (GLD) 166.34 -0.2% +18.9%
Silver (SLV) 33.76 -2.0% -0.2%
U.S. Dollar 78.79 0.0% +2.5%
Euro 1.33 -0.1% -3.4%
Volatility (^VIX) 17.29 +0.2% -16.5%
Gold Stocks (^HUI) 523.38 -2.0% -9.1%
10-Year Yield 1.99 -2.5% -42.5%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 137.31 -0.3% +6.8%
S. Korea (EWY) 60.14 -0.3% +5.3%
S. Africa (EZA) 70.39 -1.4% +4.5%
Singapore (EWS) 12.98 -0.2% +3.0%
Lat.America (ILF) 49.31 -0.3% -2.8%
Taiwan (EWT) 13.68 -1.1% -3.5%
China (FXI) 40.27 -0.1% -3.6%
Israel (ISL) 13.50 +1.1% -10.9%
Japan (EWJ) 9.95 -1.0% -11.0%
Canada (EWC) 29.05 -0.9% -11.8%
India (IFN) 23.26 -0.9% -19.9%
Russia (TRF) 17.88 +0.3% -25.0%

Sector ETFs
Symbol Price
Change
52-Wk
Retail (PMR) 24.57 -0.6% +25.1%
Big Tech (QQQQ) 64.87 -0.1% +14.6%
Utilities (XLU) 34.96 -0.1% +14.4%
Big Pharma (PPH) 73.61 +0.6% +14.1%
Health Care (IYH) 75.54 -0.2% +13.3%
Consumer Svcs (IYC) 78.12 -0.2% +13.2%
Real Estate (IYR) 60.44 0.0% +7.5%
Biotech (PBE) 22.23 -0.7% +6.5%
Industrials (IYJ) 70.26 -0.6% +3.7%
Transportation (IYT) 92.16 -1.1% +3.5%
Defense (PPA) 19.90 -0.7% +2.3%
Telecom (IYZ) 22.26 -0.1% +0.4%
Software (PSJ) 25.97 -0.7% -0.7%
Construction (PKB) 13.41 -2.1% -1.3%
Media (PBS) 14.69 -0.7% -1.7%
Insurance (PIC) 16.03 -0.7% -2.2%
Water (PHO) 18.75 -1.2% -2.6%
Internet (HHH) 70.21 +0.1% -3.8%
Financials (IYF) 55.41 -0.5% -4.5%
Basic Mat (IYM) 71.38 -0.7% -6.8%
Oil Service (OIH) 121.00 +2.4% -11.4%
Semis (PSI) 15.30 -1.5% -14.0%
Nanotech (PXN) 6.45 -1.5% -35.5%
Alt. Energy (PBW) 5.62 -1.4% -45.5%

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