U.S. equity markets have had a good year. The prices of the indices themselves sit at all-time highs while year-to-date returns have given investors reason to celebrate. The Dow Jones Industrial Average has gained 10.5%, the S&P 500 better than 9% and the tech-heavy Nasdaq is up nearly 17%. However, unless you were smart enough to take the passive index-following route or stick with the much hyped FAANG (Facebook, Apple, Amazon, Netflix, Google) names, you may be among the frustrated. In previous articles, I’ve called out some of those frustrated investors moaning about the lack of quality bargains in stocks. Again,… Read More

U.S. equity markets have had a good year. The prices of the indices themselves sit at all-time highs while year-to-date returns have given investors reason to celebrate. The Dow Jones Industrial Average has gained 10.5%, the S&P 500 better than 9% and the tech-heavy Nasdaq is up nearly 17%. However, unless you were smart enough to take the passive index-following route or stick with the much hyped FAANG (Facebook, Apple, Amazon, Netflix, Google) names, you may be among the frustrated. In previous articles, I’ve called out some of those frustrated investors moaning about the lack of quality bargains in stocks. Again, I will say that they’re just not looking hard enough. Using a screen for large-cap stocks based on forward price-to-earnings ratio (P/E) discounts and dividend yields greater than 2%, I’ve uncovered a list of high-quality, big-name, franchise stocks that are trading at deep discounts to the market. Here are three of the strongest. The Blackstone Group (NYSE: BX) With a market cap of nearly $40 billion, Blackstone is the undisputed heavyweight champ of what we in the wealth management business refer to as alternative asset management. Alternative assets run the spectrum from long-short, hedge-fund style products to real estate… Read More

One of my favorite scenes from the brilliant Steve Martin film The Jerk was when the deranged sniper played by C. Emmett Walsh is firing at Martin’s character, the hapless gas station attendant Navin Johnson, yelling “Die milk face!” The sniper’s aim is poor and as the bullets whiz past him, Martin yells, “He hates these cans!” Having been a long-time bull on the seven-million-pound networking gorilla Cisco Systems (Nasdaq: CSCO) and for quite a while, I’ve felt a little like Navin Johnson where the market is the sniper and I’m running around yelling “It hates this stock!” What am… Read More

One of my favorite scenes from the brilliant Steve Martin film The Jerk was when the deranged sniper played by C. Emmett Walsh is firing at Martin’s character, the hapless gas station attendant Navin Johnson, yelling “Die milk face!” The sniper’s aim is poor and as the bullets whiz past him, Martin yells, “He hates these cans!” Having been a long-time bull on the seven-million-pound networking gorilla Cisco Systems (Nasdaq: CSCO) and for quite a while, I’ve felt a little like Navin Johnson where the market is the sniper and I’m running around yelling “It hates this stock!” What am I missing? Big Tech, Low Price On average, the company has grown earnings per share at an 11% annual rate over the last four years. The common dividend per share has grown at a 13% annual rate for the same time period. Total cash per share is a staggering $14.12, representing 45% of Cisco’s current share price. #-ad_banner-#Rationally, this is a stock investors looking for high quality, blue-chip brand names should own. But investors and markets are rarely, if ever, rational. The biggest concern the herd has is revenue weakness. For fiscal year 2017 (Cisco’s ends in… Read More

I had a busy summer. Whether it was helping one son with his Eagle Scout project, shuttling the other one to out-of-state lacrosse tournaments for his summer travel team, or expanding my business, there wasn’t a whole lot of time for leisurely summer stuff. The market has had a busy summer as well. Since the middle of May, the S&P 500 Index has surged nearly 4.5% while the index has climbed more than 10% year-to-date. On the bond side of the market, yields on the 10-year Treasury have fallen nearly 8%, causing pundits and investors alike to fret over extended… Read More

I had a busy summer. Whether it was helping one son with his Eagle Scout project, shuttling the other one to out-of-state lacrosse tournaments for his summer travel team, or expanding my business, there wasn’t a whole lot of time for leisurely summer stuff. The market has had a busy summer as well. Since the middle of May, the S&P 500 Index has surged nearly 4.5% while the index has climbed more than 10% year-to-date. On the bond side of the market, yields on the 10-year Treasury have fallen nearly 8%, causing pundits and investors alike to fret over extended valuations and low yields.  On the surface, it would appear that they’re right. But they’re not diving deep enough. Relative value and attractive yields are out there. A Truly Impressive Income Fund Recently, I’ve been exploring closed-end funds (CEFs). The primary reason is that they typically pay above-average dividend yields and often trade at attractive discounts to their net asset value (NAV). One fund that’s caught my attention is the Franklin Limited Duration Income Trust (NYSE: FTF). With total net assets of around $300 million, FTF focuses on providing investors a high rate of income by taking a bottom-up… Read More

I’m convinced that no one gets a bargain when it comes to buying a new car or showroom furniture. Those deals just don’t exist. But when some investors say the market is too expensive, I’m not convinced. There’s always a bargain somewhere. Granted, it may be a bargain for a reason that will ensure it becomes even cheaper. But it’s usually the case that those who can’t find anything to buy aren’t looking hard enough. Yes, I agree that stock markets are at record highs. Making a broad-based bet on the market moving up could make an investor wonder aloud… Read More

I’m convinced that no one gets a bargain when it comes to buying a new car or showroom furniture. Those deals just don’t exist. But when some investors say the market is too expensive, I’m not convinced. There’s always a bargain somewhere. Granted, it may be a bargain for a reason that will ensure it becomes even cheaper. But it’s usually the case that those who can’t find anything to buy aren’t looking hard enough. Yes, I agree that stock markets are at record highs. Making a broad-based bet on the market moving up could make an investor wonder aloud if he’s paying too much. If he was focusing on the most widely-held names, he’d would be correct. If a bond investor was seeking income, he’d have to buy the longest maturities available to get paid anything. Even then, those yields would be miserly, not to mention the principal risk involved with a longer maturity and the threat of rising rates. Despite those challenges, I’ve found a closed-end fund (CEF) that trades at an attractive discount relative to its net asset value (NAV) and the market, throws off a well above average income stream, and can hedge an entire portfolio… Read More

If baseball great Yogi Berra looked at a 20-year chart of the Nasdaq Composite Index, he might say that it’s “Déjà vu all over again.” To those who lived through the tech bubble, yours truly included, the chart does look eerily foreboding. And always remember that the most dangerous, and expensive, phrase in the English language is “this time it’s different”. At the turn of the century, top internet service provider American Online (AOL), now owned by telecom giant Verizon (NYSE: VZ), had just announced a now ill-fated merger with content trove Time Warner (NYSE: TWX). Recently, online… Read More

If baseball great Yogi Berra looked at a 20-year chart of the Nasdaq Composite Index, he might say that it’s “Déjà vu all over again.” To those who lived through the tech bubble, yours truly included, the chart does look eerily foreboding. And always remember that the most dangerous, and expensive, phrase in the English language is “this time it’s different”. At the turn of the century, top internet service provider American Online (AOL), now owned by telecom giant Verizon (NYSE: VZ), had just announced a now ill-fated merger with content trove Time Warner (NYSE: TWX). Recently, online retailer Amazon (Nasdaq: AMZN) announced it was acquiring grocery chain Whole Foods Market (NYSE: WFM) in its attempt to conquer the world, I guess. But while history may be starting to rhyme as the Nasdaq reaches nosebleed territory, and there is room to argue that the index does need to blow off a little froth, things may not be as treacherous as they may appear. Here are three observations. 1. Inflated Valuations Are Concentrated While the Nasdaq may be hitting all-time highs, the charge is being led by five stocks: Apple (Nasdaq: AAPL), Alphabet (Nasdaq: GOOG), Microsoft (Nasdaq: MSFT),… Read More

Here we are again at the halfway point in another trading year. What’s happened? What’s going to happen? I’m not sure of what will happen going forward. But we can look in the rearview mirror and try to position our investments as prudently as we can based on what we already know. A lot of variables can affect the outcome: Interest rates, the economy, and geo-political events just to name a few. Let’s dive right in… Stocks Are Still Cruising In The Stratosphere Midway through 2017, U.S. equity markets seem to be in the optimism business. Year-to-date, the S&P… Read More

Here we are again at the halfway point in another trading year. What’s happened? What’s going to happen? I’m not sure of what will happen going forward. But we can look in the rearview mirror and try to position our investments as prudently as we can based on what we already know. A lot of variables can affect the outcome: Interest rates, the economy, and geo-political events just to name a few. Let’s dive right in… Stocks Are Still Cruising In The Stratosphere Midway through 2017, U.S. equity markets seem to be in the optimism business. Year-to-date, the S&P 500 index has climbed 7.6% on a price basis. Annualized, that puts us on track for better than 15% return. But will we get there? Good question! The forward P/E of the S&P 500 currently sits at 18.7 — not too terribly overvalued. If we can get through the summer doldrums without any surprises (more on that in a bit), we could at least get close. #-ad_banner-#The real story in stocks, though, is international. The MSCI EAFE index, one of the best measures of developed market performance, has turned in an impressive 12.3% year-to-date, leaving the S&P in the dust. Read More

Recently, much of my work had focused on the role interest rates play in the current state of financial markets. While the Federal Reserve has raised rates, the anticipated upward movement of real rates, mainly in bonds, has yet to solidly materialize.  Rising rates will affect financial sector stocks in different ways. Banks, especially regional banks, tend to preform better if rates are rising. Rising rates are indicative of an improving economy. A healthier economy points to rising consumer demand and business expansion. Regional bank margins usually improve with higher loan demand and accompanying higher rates.  Put… Read More

Recently, much of my work had focused on the role interest rates play in the current state of financial markets. While the Federal Reserve has raised rates, the anticipated upward movement of real rates, mainly in bonds, has yet to solidly materialize.  Rising rates will affect financial sector stocks in different ways. Banks, especially regional banks, tend to preform better if rates are rising. Rising rates are indicative of an improving economy. A healthier economy points to rising consumer demand and business expansion. Regional bank margins usually improve with higher loan demand and accompanying higher rates.  Put simply: banks can charge more therefore they make more. It’s rare that financial sector stocks can operate independent of interest rates. However, there are a select few that are good beds regardless of what rates are doing. And that’s what I want to focus on today… Business Development Companies — Over the last decade, these entities, also known as BDCs, have stepped in and become the nation’s middle market business lender. During the financial crisis, as traditional banks backed away from lending to small and mid-sized businesses, BDCs filled the gap thanks mainly to their ability to tap capital markets,… Read More

I wasn’t a very good physics student in high school. I was a writing, reading, and history guy. But I do remember Newton’s Third Law: “For every action, there is an equal and opposite reaction.” The operative word is “opposite”.  That’s what the bond market experienced last week after the Federal Reserve raised its benchmark Fed Funds rate by 25 basis points, or one quarter of one percent. If the Fed raises rates, yields are going higher, right? Nope. Newton’s Third Law reared its head and proved itself. As the Fed announced its intentions, the yield on the… Read More

I wasn’t a very good physics student in high school. I was a writing, reading, and history guy. But I do remember Newton’s Third Law: “For every action, there is an equal and opposite reaction.” The operative word is “opposite”.  That’s what the bond market experienced last week after the Federal Reserve raised its benchmark Fed Funds rate by 25 basis points, or one quarter of one percent. If the Fed raises rates, yields are going higher, right? Nope. Newton’s Third Law reared its head and proved itself. As the Fed announced its intentions, the yield on the 10-Year U.S. Treasury fell. Along with raising the Fed Funds rate, the central bank also articulated its plan to shrink its holdings of government securities.  During the financial crisis of 2007-2008 as part of its quantitative easing (QE) strategy, the Fed created excess liquidity in the monetary system by buying up U.S. government securities. Their holdings ballooned to nearly $4.5 trillion. #-ad_banner-#As the economy improved, the Fed first slowed its purchase schedule (the “Taper Tantrum”). Now, the Fed has announced that as its holdings mature, the cash will not be reinvested. This is the Fed’s long game. Rather than increase… Read More

Warren Buffett became one of the richest men on the planet by making smart investments in what many would consider boring, unglamorous businesses. Property-casualty insurance, railroads, soft serve ice cream, and residential real estate brokerage are a few of the mundane sectors that have enriched him and Berkshire Hathaway (NYSE: BRK.A, NYSE: BRK.B) shareholders.  One of the most lucrative “boring” sectors I’ve watched throughout my career has been retail aftermarket auto parts. It’s consistent. It’s still extremely fragmented, which means that the biggest players have plenty of room to grow market share organically or through acquisition. And when the stock… Read More

Warren Buffett became one of the richest men on the planet by making smart investments in what many would consider boring, unglamorous businesses. Property-casualty insurance, railroads, soft serve ice cream, and residential real estate brokerage are a few of the mundane sectors that have enriched him and Berkshire Hathaway (NYSE: BRK.A, NYSE: BRK.B) shareholders.  One of the most lucrative “boring” sectors I’ve watched throughout my career has been retail aftermarket auto parts. It’s consistent. It’s still extremely fragmented, which means that the biggest players have plenty of room to grow market share organically or through acquisition. And when the stock of one of the biggest players goes on sale, DO NOT miss an opportunity to buy. The chart below shows how the top four aftermarket auto parts retailer stocks have performed over a three-year period.   The third company, one of the weakest performers, is Genuine Parts Company (NYSE: GPC).It’s,my favorite of the group. Here’s why… Getting Paid Genuine Parts has increased its dividend payment steadily over the last 60 years. Over the last decade, the company has grown its dividend at an annual rate of 7%. AutoZone and O’Reilly pay no dividends, while Advance pays… Read More

Around our house, the month of May always seems to be unusually hectic. My wife is a teacher, so she is buttoning up her school year. My teenagers are furiously studying for and taking exams. Often, it seems that this domestic volatility is also found in the market. There is some truth to the investing adage “sell in May and go away.” This 10-year chart is compelling evidence. Over the last 10 years, the S&P 500 has experienced noticeable volatility during the month of May 9 out of 10 times. Would you have been better off selling and… Read More

Around our house, the month of May always seems to be unusually hectic. My wife is a teacher, so she is buttoning up her school year. My teenagers are furiously studying for and taking exams. Often, it seems that this domestic volatility is also found in the market. There is some truth to the investing adage “sell in May and go away.” This 10-year chart is compelling evidence. Over the last 10 years, the S&P 500 has experienced noticeable volatility during the month of May 9 out of 10 times. Would you have been better off selling and sitting on cash? Maybe, maybe not. However, as we approach the mid-year point, there are a few things investors can do to ensure their portfolio is well positioned for the second half of the year. Here are three key steps to take for a summer portfolio checkup. 1. Review Non-Core Holdings Good portfolio construction should include both core and non-core stocks. Core stocks would be those purchased based on a long-term, strategic story like the rise of the global middle class, the Internet of things, the aging baby boomer population, or consistent dividend growth. These are phenomena that take… Read More