Death of stalwarts or buying opportunity?

[Viking]

I am amazed at how many iconic, stalwart type companies are trading at (or near) 52 weeks lows (and near multi year lows) at the same time the market is down single digits from all time highs. Many of these stalwarts have made poor aquisition decisions, have taken on large amounts of debt (to fund aquisitions and/or buyback stock). I am thinking it may make some sense to allocate 5 or 10% of a portfolio and start building a basket of these types of companies... 0.5% position in each and buy 10 or 20 over time. Or are many of these companies too messed up to bother?

1.) 3M

2.) Kraft Heinz

3.) Newell Brands

4.) Dow Dupont

5.) JNJ

 

6.) CVS

7.) Walgreens

8.) Kroger

 

9.) Fedex

Other names that fit?

 

 

[KCLarkin]

I am amazed at how many iconic, stalwart type companies are trading at (or near) 52 weeks lows (and near multi year lows) at the same time the market is down single digits from all time highs. Many of these stalwarts have made poor aquisition decisions, have taken on large amounts of debt (to fund aquisitions and/or buyback stock). I am thinking it may make some sense to allocate 5 or 10% of a portfolio and start building a basket of these types of companies... 0.5% position in each and buy 10 or 20 over time. Or are many of these companies too messed up to bother?

1.) 3M

2.) Kraft Heinz

3.) Newell Brands

4.) Dow Dupont

5.) JNJ

6.) CVS

7.) Walgreens

8.) Kroger

9.) Fedex

Other names that fit?

 

Seems like a good strategy. You could add IBM or HPE if you wanted to diversify away from the retail and healthcare sectors. Both Dow and DuPont are probably worth their own allocation. Dow is a bit different than the others, since it is more cyclical.

 

Not sure that Newell fits as a stalwart. But if you want to add some ugly, you could add GE to the list.

 

[Castanza]

I was just looking at 3M and scratching my head. Off hand I believe it's dropped more these past 2 months than during the entire 2008 financial crisis.

 

Trucking industry is beginning to look juicy imo. Good article

 

http://scottgrannis.blogspot.com/2019/05/truck-tonnage-looks-quite-bullish.html

 

 

[Gregmal]

I'm a big fan of CVS here. Boneheaded acquisition aside.

 

I'd throw Bayer into the ring as well. No position there.

[Spekulatius]

The Trust Banks like BK and STT trade at 52week lows, WFC is just a hair from it.

 

Distributors MSM, GWW

 

Pharma  Distribution: MCK, CAH, ABC

Pharma : BIIB, BMY, GILD

Chemicals ( besides DWDP): Dow, BASFY, EMN

Defense: BAESY

 

I think most of the above are actually quality business.

 

 

[Viking]

Thanks to everyone who has commented. Lots of companies to consider....

 

I also have West Fraser Timber (WFT.TO) on my watch list; very well managed, low cost lumber producer. Trading at 52 week low and low end of 5 year range. If lower mortgage rates result in stronger housing market in US the lumber companies should do well. But very cyclical.

[Gregmal]

Yea this is why I find the whole "stocks are very expensive" rhetoric to be lazy. Sure some of these things have issues, but there are a ton of high quality companies around at very reasonable if not downright stupid cheap prices. Add refiners, airlines, Semis, real estate... The market IMO is largely only pricy if you lazily look at basket numbers for the indexes or are talking about SAAS stocks and a few other tech sectors.

[Viking]

Yea this is why I find the whole "stocks are very expensive" rhetoric to be lazy. Sure some of these things have issues, but there are a ton of high quality companies around at very reasonable if not downright stupid cheap prices. Add refiners, airlines, Semis, real estate... The market IMO is largely only pricy if you lazily look at basket numbers for the indexes or are talking about SAAS stocks and a few other tech sectors.

 

Greg, well said. I think this also demonstrates how much a few massive companies (like Amazon) completely dominate the averages. It is like we are having a rolling bear market in some industries and sectors and it is being masked by the averages only being down a little.

[plato1976]

anything wrong with J&J?

 

I am amazed at how many iconic, stalwart type companies are trading at (or near) 52 weeks lows (and near multi year lows) at the same time the market is down single digits from all time highs. Many of these stalwarts have made poor aquisition decisions, have taken on large amounts of debt (to fund aquisitions and/or buyback stock). I am thinking it may make some sense to allocate 5 or 10% of a portfolio and start building a basket of these types of companies... 0.5% position in each and buy 10 or 20 over time. Or are many of these companies too messed up to bother?

1.) 3M

2.) Kraft Heinz

3.) Newell Brands

4.) Dow Dupont

5.) JNJ

6.) CVS

7.) Walgreens

8.) Kroger

9.) Fedex

Other names that fit?

 

Seems like a good strategy. You could add IBM or HPE if you wanted to diversify away from the retail and healthcare sectors. Both Dow and DuPont are probably worth their own allocation. Dow is a bit different than the others, since it is more cyclical.

 

Not sure that Newell fits as a stalwart. But if you want to add some ugly, you could add GE to the list.

[Gregmal]

Yea this is why I find the whole "stocks are very expensive" rhetoric to be lazy. Sure some of these things have issues, but there are a ton of high quality companies around at very reasonable if not downright stupid cheap prices. Add refiners, airlines, Semis, real estate... The market IMO is largely only pricy if you lazily look at basket numbers for the indexes or are talking about SAAS stocks and a few other tech sectors.

 

Greg, well said. I think this also demonstrates how much a few massive companies (like Amazon) completely dominate the averages. It is like we are having a rolling bear market in some industries and sectors and it is being masked by the averages only being down a little.

 

Yup. And I'd even go as far as to say that many market darlings such as Disney, Google, etc are not "that" pricey either.  Interesting times for sure. You can buy global powerhouse businesses for single and low double digit multiples and even some darlings for 20x. Yet so many people sit here acting like there is nothing to buy. VIC has polled low single digits for "many" bargains now for like a decade. Makes you wonder wtf people are looking at. Even the mother of all "market" stocks, BRK, is pretty darn inexpensive.

[Spekulatius]

anything wrong with J&J?

 

I am amazed at how many iconic, stalwart type companies are trading at (or near) 52 weeks lows (and near multi year lows) at the same time the market is down single digits from all time highs. Many of these stalwarts have made poor aquisition decisions, have taken on large amounts of debt (to fund aquisitions and/or buyback stock). I am thinking it may make some sense to allocate 5 or 10% of a portfolio and start building a basket of these types of companies... 0.5% position in each and buy 10 or 20 over time. Or are many of these companies too messed up to bother?

1.) 3M

2.) Kraft Heinz

3.) Newell Brands

4.) Dow Dupont

5.) JNJ

6.) CVS

7.) Walgreens

8.) Kroger

9.) Fedex

Other names that fit?

 

Seems like a good strategy. You could add IBM or HPE if you wanted to diversify away from the retail and healthcare sectors. Both Dow and DuPont are probably worth their own allocation. Dow is a bit different than the others, since it is more cyclical.

 

Not sure that Newell fits as a stalwart. But if you want to add some ugly, you could add GE to the list.

 

I personally would avoid NWL and KHC, as I think they got structural issues and a lot of debt. I was wrong on WBA before, but this business has really become cheap. It is possible they structural issues will become more evident, but it seems like a lot has been priced in. I would rather deal with business that have some cyclicality like Dow, CVTA or DD ( the DuPont fragment) than business that have a high chance of becoming melting ice cubes.

 

The market has a whole looks certainly expensive, but there are a lot of sectors where stocks have become very cheap. Take for example the packaging industry (containerboard),  steel/ scrap stocks, virtually the entire chemical sector, automobile, banks, real estate, refining and many many more. looks like a very similar setup than Y2000 to me.

 

I have run into several groups of people who are casual investors  (some of which are the stereotypical Robinhood Type) and none of them has a clue about value. They don’t know how much the companies they buy stocks in earn, competition, valuation metrics and quite frankly even if you mention it, they don’t think it matters. They are buying basically a story that they heard about in TV or from colleagues (Beyondmeat is a favorite right now) and basically trade newsflow or in a roundabout way momentum. The other part of folks don’t deal with stocks at all and just buy index funds mechanically.

 

The way I see it, it explain pretty much why value right now is in the tank and it probably takes a pretty cataclysmic event to change, I envision an environment similar to the bear market in 2001. Even that isn’t certain, it is quite conceivable that in a bear market, value continues to underperform.

[RuleNumberOne]

Yeah, we need a real bear market to end the craziness. Some of these cloud stocks have no P/E but have a market cap in the tens of billions.

 

If you look at the FT's cloud stocks list, almost all of them run on AWS (except companies which should not be on the list such as MSFT, Adobe, PANW, NTNX, VMWare). The advent of AWS really lowered the technical bar in a big way for enterpreneurs building a cloud business. But this lowering of the technical bar also means lower barriers to entry. These barriers haven't been tested yet because these cloud companies are selling below cost and losing money. Who would want to fund competitors when the market leaders are losing money?

 

 

I have run into several groups of people who are casual investors  (some of which are the stereotypical Robinhood Type) and none of them has a clue about value. They don’t know how much the companies they buy stocks in earn, competition, valuation metrics and quite frankly even if you mention it, they don’t think it matters. They are buying basically a story that they heard about in TV or from colleagues (Beyondmeat is a favorite right now) and basically trade newsflow or in a roundabout way momentum. The other part of folks don’t deal with stocks at all and just buy index funds mechanically.

 

The way I see it, it explain pretty much why value right now is in the tank and it probably takes a pretty cataclysmic event to change, I envision an environment similar to the bear market in 2001. Even that isn’t certain, it is quite conceivable that in a bear market, value continues to underperform.

[RuleNumberOne]

A better way for FT would be to define a cloud stock as a business that runs on AWS. The list would then include Uber, Lyft, food and grocery delivery companies.

 

And the list would then naturally exclude companies such as MSFT, PANW, NTNX.