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Stocks for the Beginner Investor

The following first appeared on Kiplinger’s as 5 Great Stocks to Buy If You’re New to Investing

The biggest challenge for many new investors is simply knowing where to start.

There’s no clear consensus on how to invest. Value investors will say the best stocks to buy are cheap ones and rattle off plenty of statistics to defend their stance. Growth and momentum investors will counter that investing in dominant growth stocks is the way to go. After all, you’re not too likely to find an all-star like Amazon.com (AMZN) sitting in the bargain bin.

What about dividends? Or share repurchases? Various studies have shown that focusing on these factors can generate solid returns.

Despite all the attempts to quantify investing, it is often more art than science. No single strategy is right for all investors. Some excel at charting and other forms of technical analysis, while some fundamentalists find bargains by digging into the minutiae of the financial statements. And there’s everything in between.

The best way for beginning investors to learn is to try a little of everything. You don’t have to get it right the first time, and you don’t have to put your capital at serious risk. So today, we’re going to look at five of the best stocks to buy if you’re new at investing. These may or may not beat the market over the next year. It would be fantastic if they did, but that’s not our point here. We’re simply looking to learn the ropes.

I’ll start with one of the very cheapest stocks in the market.

Value investing has trounced all other disciplines of investing over the years, at least according to several academic studies such as Fama and French’s landmark 1992 paper “Common Risk Factors in the Returns on Stocks and Bonds.”

But there is no such thing as a free lunch. While value stocks may outperform over time, they can be painful to hold. Sometimes cheap stocks keep getting cheaper.

Consider automaker General Motors (GM), which trades for about $34 per share. It’s one of the cheapest large-cap stocks in America right now, trading for just 5.5 times expected 2018 earnings and 0.3 times sales. To put that in perspective, the Standard & Poor’s 500-stock index – a group of 500 companies considered to be reflective of the American economy – trades for 18 times expected 2018 earnings and 2.3 times sales.

However, GM also looked cheap by these same metrics back in July, when it traded for more than $44 per share.

Value investing can be frustrating, but General Motors is worth a try. GM clearly is undervalued by most traditional metrics, and you’re being paid to wait while Wall Street figures that out. GM pays a 4.4% dividend, more than twice what the average S&P 500 company pays out right now.

To continue reading, see The following first appeared on Kiplinger’s as 5 Great Stocks to Buy If You’re New to Investing

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Investing In Latin America

The following is an excerpt from 7 Top Latin American Stocks to Buy, originally published on Kiplinger’s.

Brazilians have a tongue-in-cheek saying about their country. Brazil is the country of the future… and it always will be.

That’s probably a little unfair. Brazil and Latin America in general have grown and modernized to the point that their economies are barely recognizable to those who remember the commodity-driven economies of decades past. Latin America is highly urbanized and has a vibrant and growing middle class.

All the same, the region still has a long way to go to meet developed world standards. For example, per capita income in the United States, Germany and France is $59,495, $50,206 and $43,550, respectively, according to recent estimates by the International Monetary Fund. In contract, Chile – the wealthiest country in Latin America – has per capita income of just $24,558, slightly below Turkey and slightly above Croatia. Argentina and Mexico weigh in at about $20,000 each.

Rome wasn’t built in a day, and it will be a long time until these countries approach developed-world living standards. All need major investments in education and infrastructure to make that happen, and these take time.

In the meantime, intrepid investors looking to get a piece of that growth have abundant options at their disposal. Latin America is home to dozens of world-class companies that stand to benefit from the continued growth in the region. Today’s we’re going to look at seven solid Latin American stocks that you can hold for the long-term. The list is more heavily weighted to Brazil and Mexico, as these countries have the deepest capital markets and the broadest selection of liquid public companies. But up and coming growth darlings like Colombia and Peru are included as well.

Creditcorp (BAP)

Apart from Colombia, Latin America’s brightest star of the past 20 years has been Peru. Like Colombia, Peru has its share of domestic unrest. In the 1980s, Peru was essentially a failed state. But in the years that have passed, the country has managed to restore law and order and has adopted solid growth policies.

The problem with investing in Peru is its lack of large, liquid stocks. The handful of Peruvian stocks with healthy trading volume tend to be clustered in the metals and mining sector.

There is, however, one large-cap Peruvian stock that gives broad-based exposure to the growing Peruvian economy: Creditcorp (BAP), a banking group with an $18 billion market cap.

The group’s Banco de Credito de Peru is the country’s largest retail bank and the natural choice for many middle class and wealthy Peruvians. But the group is also active in tapping the needs of working-class Peruvians via microfinance leader Mibanco and has vast insurance and wealth management wings as well. You can think of Creditcorp as a one-stop shop for Peruvian finance.

As we were reminded in 2008, finance can be a volatile sector. But Creditcorp has managed to survive and thrive through booms and busts and everything in between. If you believe in the long-term Peruvian growth story, Creditcorp is your best option.

To continue reading, please see 7 Top Latin American Stocks to Buy.

Disclosures: No current position in any stock mentioned.

 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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MLPs That Should Crush the Market in 2018

The following is an excerpt from 5 MLPs That Should Crush the Market in 2018.

For a collection of companies that tend to own boring, cash flowing assets, it sure has been a wild ride in master limited partnerships.

On a total return basis (including dividends), the Alerian MLP Index — which is heavily weighted to the largest midstream oil & gas pipeline operators — doubled in value between the fourth quarter of 2010 and its all-time high in the fourth quarter of 2014.

Unfortunately, it all went downhill quickly. Encouraged by low interest rates and high energy prices, the pipeline companies borrowed heavily to finance their growth projects while distributing virtually all of their cash flow from operations as cash distributions. When crude oil started to tumble in 2015, the banks and bondholders got jittery and even some of the largest players found themselves effectively locked out of the capital markets.

Before it was over, the distribution growth that investors found so attractive went into reverse. Many MLPs froze their distributions and several actually had to slash them.

But those rough years helped to create the fantastic opportunity we have today. As a sector, MLPs got their leverage under control and started funding their growth projects with internally generated cash flow rather than new debt. This brings the sector more in line with “normal” public company behavior.

With firmer energy prices and more stable financing, MLPs are getting their growth mojo back, yet prices don’t fully reflect that reality, at least not yet.

So, today we’re going to take a look at five MLPs that I expect to deliver market-crushing total returns in the years ahead.

I’ve been a fan of Energy Transfer Equity LP (ETE) for a long time. In fact, it was my winning entry in InvestorPlace’s Best Stocks for 2016 contest.

Today, ETE is the linchpin in an energy infrastructure empire with over 71,000 miles of natural gas, natural gas liquids, crude oil and refined products pipelines.

Energy Transfer’s structure can be a little confusing to the uninitiated. Energy Transfer Equity is the general partner of two other MLPs: Energy Transfer Partners LP (ETP) and Sunoco LP (SUN), which distributes fuel to gas stations in over 30 states.

This complicated structure has become something of a liability to the company in an era in which investors demand more transparency. Furthermore, the company really hurt its reputation when it tried to buy Williams Companies (WMB) back in early 2016 … before changing its mind and resorting to questionable means to terminate the deal.

That’s OK. I like companies that have a little egg on their face, as we can often get them at a good price. Today, ETE is no exception. It yields a solid 7.2% and, after a short hiatus, started growing its distribution again last year.

To continue reading, please see 5 MLPs That Should Crush the Market in 2018.

Disclosures: Long ETE

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Is Value Dead?

Value investing has historically been a winning strategy… but it’s been a rough couple of years.

So… is value dead? Should we all just buy the S&P 500 and be done?

The rumors of value’s death have been greatly exaggerated. Larry Swedroe wrote am excellent piece on the subject this month, Don’t Give Up On the Value Factor, and I’m going to publish a few excerpts below.

As the director of research for Buckingham Strategic Wealth and The BAM Alliance, I’ve been getting lots of questions about whether the value premium still exists. Today I’ll share my thoughts on that issue. I’ll begin by explaining why I have been receiving such inquiries.

Recency bias – the tendency to give too much weight to recent experience and ignore long-term historical evidence – underlies many common investor mistakes. It’s particularly dangerous because it causes investors to buy after periods of strong performance (when valuations are high and expected returns low) and sell after periods of poor performance (when valuations are low and expected returns high).

A great example of the recency problem involves the performance of value stocks (another good example would be the performance of emerging market stocks). Using factor data from Dimensional Fund Advisors (DFA), for the 10 years from 2007 through 2017, the value premium (the annual average difference in returns between value stocks and growth stocks) was -2.3%. Value stocks’ cumulative underperformance for the period was 23%. Results of this sort often lead to selling.

Charles here. Other than perhaps overconfidence, recency bias is probably the most dangerous cognitive bias for the vast majority of investors. Investors look at the recent past and draw the conclusion that this is “normal” and representative of what they should expect going forward. This is why otherwise sane people do crazy things like buy tech stocks in 1998, Florida homes in 2005 or Bitcoin in late 2017.

Investors who know their financial history understand that this type of what we might call “regime change” is to be expected. In fact, even though the value premium has been quite large and persistent over the long term, it’s been highly volatile. According to DFA data, the annual standard deviation of the premium, at 12.9%, is 2.6-times the size of the 4.8% annual premium itself (for the period 1927 through 2017).

As further evidence, the value premium has been negative in 37% of years since 1926. Even over five- and 10-year periods, it has been negative 22% and 14% of the time, respectively. Thus, periods of underperformance, such as the one we’ve seen recently, should not come as any surprise. Rather, they should be anticipated, because periods of underperformance occur in every risky asset class and factor. The only thing we don’t know is when they will pop up.

 

 

Well said.

After a period like the past ten years, it’s easy to draw the conclusion that value is dead. But investors drew the same conclusion in 1999… and they were dead wrong.

As a case in point, see Julian Robertson’s last letter to investors.

 

 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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The Best Stocks for No-Doubt Dividends

The following is an excerpt from The 10 Best Stocks to Invest In for No-Doubt Dividends, originally published on Kiplinger’s.

The legendary George Soros would reportedly reshuffle his portfolio whenever he would get back spasms.

Whether it was his subconscious mind’s way of telling him he needed to make portfolio changes… or simply ridiculous superstition… Soros would reverse his speculative bets whenever his back would flare up on him. And frankly, given the man’s track record, who are we to question his reasons?

Well, I don’t claim to have Soros’ intuition, though I will point out that I had major back spasms in late January, shortly before the market peaked and started a nasty correction.

I’m certain this was due far less to premonition and far more to me being over 40 yet trying to roughhouse with my kids like I’m still in my 20s. But either way, I did end up taking a little risk off the table.

I did not, however, sell my most reliable dividend payers. Stocks rise, and stocks fall. But a reliable dividend payer will continue to deliver the goods through good markets and bad, dropping cash into your pocket with every passing quarter.

Today, we’re going to look at 10 companies you can depend on to consistently pay and raise their dividends through bull and bear markets alike.

Warren Buffett has said on more than a few occasions that you should only buy stocks you’d be perfectly happy to hold if the market shut down for 10 years. These are those kinds of stocks. If the market were to close tomorrow, you’d continue to collect the dividend indefinitely.

Not all of these stocks are exceptionally high yielding. In fact, a high yield is often (though certainly not always) a sign of trouble. But most will generally pay a yield that, at the very least, is competitive with what you’d find in the bond market and have long histories of raising their dividends over time. These are stocks you can credibly stake your retirement on.

Enterprise Products Partners (EPD)

I’ll start with one of my very favorite long-term holdings, blue-chip pipeline operator Enterprise Products Partners (EPD).

It might seem a little odd to include an oil and gas MLP in a list of “no doubt” dividend payers given some of the turmoil the industry has faced in recent years. Starting in 2015, some of the largest and best known pipeline operators – including Kinder Morgan (KMI), the granddaddy of them all – had to slash their distributions due to a lousy energy market and tightening credit conditions.

As a Texan, I feel I have license to poke fun of my own kind. And many of the pipeline operators (virtually all of which are based in Texas) really lived up to the reputation of Texas oilmen as gun-slinging risk takers. They borrowed far too heavily to aggressively boost their distributions and allowed their operations to become too heavily impacted by the price of crude oil.

Well, let me emphasize that Enterprise Products is not one of those companies. In an industry dominated by cowboys, EPD is a pillar of prudence and stability. Rather than try to dazzle investors with unsustainably high distribution growth, EPD chose to play it cool and raise its distribution 5% – 6% per year over the past decade. And unlike most of its peers, the stability of its distribution never came under serious question.

At current prices, EPD yields about 6.6%, which is exceptionally high for this stock. I also don’t expect those yields to be on offer for long, as value investors seem to be swooping in after a rough first quarter.

I happen to be one of those value investors; I’ve been buying the dips throughout 2018.

Disclosures: Long EPD and KMI

To read the remainder of the article, please see The 10 Best Stocks to Invest In for No-Doubt Dividends

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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