America, these days, is infatuated with anything that is out of the ordinary. Scandal sheets and blogs sell like hotcakes while one newspaper after another enters bankruptcy. Hair dyes have migrated from burnt auburn to psychedelic purple. Sometimes, as boring as it may seem at the time, it is good to settle down with the tried and true. Investing is no different.
From the low set at the close this past March 9, the more beaten down sectors have rallied dramatically. Emerging market funds are up 30% with India and Asia leading the way. The financials have doubled and in some cases, even tripled. Bank of America, under $3 per share at one point, now trades at around $11.50. Seeking a quick pop, many investors are ignoring solid companies with impeccable fundamentals to try and recoup their losses as quickly as possible. These are the companies that weathered the storm the most easily and, in many cases, despite the more than fifty percent drop in the broad stock market averages, saw their stock prices decline much less.
A company like a Pepsi has barely budged since mid-March. With its 3.5% dividend and a stock price still 30% from its 52-week high, the company makes sense in any economic environment. In addition to its namesake, its product line, one with global reach, includes Quaker Oats, Gatorade and Frito Lay. Investors have lost their appetite for this company despite its solid balance sheet and recession resistant offerings.
Johnson and Johnson has also been an underperformer as of late as investors have sought riskier offerings. Like Pepsi, Johnson and Johnson sports a 3.5% dividend and a stock price that has barely budged in the latest market upswing. J&J, the maker of Listerine, Stayfree and Sudafed, is a multinational health care conglomerate that sports an AAA credit rating.
A mutual fund worth noting in this environment is the Oakmark Fund. A large-cap oriented no-load mutual fund it has delivered returns in line with the S&P 500 over the past 5 years but has recently jumped dramatically ahead of its peers. A fund with a bent toward value-investing, its top holdings include Intel, JP Morgan and Walgreen. For those investors preferring mutual funds, this could be an attractive alternative.
The BOTTOM LINE. Don’t invest as if you can get all of your losses back overnight. Certainly, you wish to overweight those areas that you think will outperform in this current market environment. However, having slow, steady investments that you can rely on during good times and bad also make dollars and sense!
Last, but certainly not least, we wish to thank all the men and women who have served our country in the U.S. Armed Forces as we commemorate them this Memorial Day Weekend. Many have sacrificed and continue to sacrifice so that we remain free. Once again, thanks to all of you and for those that gave their lives for this country, we pray for you.