Marketwatch is a finance website that survives by cranking out hundreds of articles per day. There isn’t hundreds of articles per day worth of actual financial news out there each day, so there is a bit of filler. Sometimes, I scroll right by. Sometimes, I wonder if a particular bit of financial analysis is legit.
Article Contents hide
1Analyzing Financial News Articles
1.1Check the person’s track record first
2Follow The Source
Analyzing Financial News Articles
Check the person’s track record first
Once you’ve been in the financial writing business for a while, you develop some contacts that you can go to for quotes and looks at finances and the stock market. If you have a big enough platform, financial gurus and analysts will come to you for some publicity. All you have to do is fill in the words around their quotes and fire up some graphs.
Ironically, what is NOT part of the job is seeing how and when a particular analysts has fared in the past with their predictions. Accountability is not part of the finance writing world.
A smart investor starts by seeing what, if anything the finance person has said in the past, and how right, or wrong they were, beyond the flattering, “He picked the last run up in technology stocks!” Cherry picking performance is a finance mainstay.
Today, I’m looking at an article that caught my eye titled, “These 7 deeply out of favor stocks are worth a look right now, says contrarian manager.”
Yeah. That’s some title. Anway, let’s have a look.
The article is about a “call” from William Smead. Before we read the article, let’s see a bit of Mr. Smead’s track record.
*To the Google!
Google often favors recent articles, and since we are looking for history, we’ll need to use the “Tools” link and pick some dates. Let’s start with 2019. (and we’ll work our way back a few years, being sure to hit some key years like 2008 when the housing boom ripped apart and took down the markets)
It turns out Mr. Smead doesn’t do a lot of predicting, so it’s interesting that he’s doing it now. (It turns out he isn’t. He published a blog post where he points out stocks his firm likes. I’m going to just go with it anyway.)
First, I found this article titled 2018: The Math is Simple. There are not any real predictions here, but I like this guy. Investing his way is investing, not gambling. You’ll never see crazy returns out of this style, but if you keep earning and investing like this, you’ll end up with valuable portfolio along the way.
There was this from late 2017, also from Market Watch
But ourcall of the day, from William Smead of Smead Capital Management, says investors may be smack in the middle of a “financial euphoria episode” — which typically ends in a crash.
https://www.marketwatch.com/story/5-telltale-signs-this-stock-markets-euphoria-could-be-ready-to-blow-up-2017-11-07
I’m not sure it’s really fair to call that a call but if you do, it didn’t work out very well
Analyze The Information
Alright, now that we know Mr. Smead isn’t more of a PR machine than someone who actually knows about money, let’s check out the article. We should get a look at, “7 deeply out of favor stocks,” that are worth a look at.
Hey, look! It’s another “call of the day.”
Ourcall of the daysteps back from politics to unearth some unloved stocks for the long haul. They come from William Smead, chief investment officer of Smead Capital Management, who says he has rarely seen so many of the 28 stocks in his Smead Value FundSMVLXlook as “mouthwatering as they do today.”
A rush to buy the big tech names, find the next big companies, and a “voracious appetite” to own COVID-19 beneficiaries has “pigged up all the money out there,” said the contrarian investor, in a Nov. 3 blog post. That leaves some “deeply out of favor stocks.”
https://www.marketwatch.com/story/these-7-unloved-stocks-are-for-the-long-haul-says-contrarian-manager-11604579260?link=sfmw_tw
Mr. Smead’s fund trails the S&P 500 without taking out any of the risk. It isn’t fair to compare a value fund to the S&P 500, but life isn’t fair and if I can just dump cash into IVV and get better performance without additional risk, then your fund is dead to me. That’s doubly true if your fund has 1.26% expense ratio! Yikes. Morningstar gives it 4 stars though, so as always, do your own research.
Just because his fund isn’t for me, doesn’t mean he doesn’t have good ideas, so let’s see what we have. Amgen, Merck and Pfizer. All drug companies.
While some value investors are all about PE, Price to Earnings, I’m a dividends man myself. I’ll need to make a note to write an article about that soon. But, for these, we have yields of 2.76%, 3.00%, and a whopping 4.15%, respectively.
Seriously, Pfizer is an enormous pharmaceutical giant. Even if the U.S. found some sort of stomach for price controls, it will be just fine, and 4.5% when interest rates on savings and bonds are much lower. I’ll definitely be looking at that.
Next up he targets “broken growth stocks.” Here he picks out eBay and Discovery. Their P/Es might look fine, but their yields suck, especially when I don’t really see a path to growth for eBay.
Then, he goes with mall real-estate investment trusts. This is a bet on the future. More specifically, it’s a bet on world where Covid is nothing anymore. It’s also a bet that Americans are ready to go back to malls. I typically don’t like mall investments. Too many malls are only successful while they are the newest and shiniest, only to fall into trouble filling all the spaces when something newer or shiner shows up.
His picks here are Simon Property (SPG) and Macerich (MAC). Man, those 10% and 8% yields are certainly tempting, but for me, these are high risk. Macys, JC Penny, and other big box stores that are the anchors form malls are hurting or disappearing altogether. It’s just really hard for me to see upside for malls. I’m not the only one, and I guess that’s what makes these deeply out of favor.
Sometimes, something is out of favor for a reason.
If you think there is time to collect your 10% yields without losing more than that on your share price over the next five or ten years, I guess these might be for you. I just don’t see that one.
Follow The Source
Ironically, if you click through to the source blog post where Mr. Smead lays out his out of favor stocks, there are actually nine stocks, not seven. I guess the Marketwatch writer hit her word count for the article and wrapped it up.
Let’s follow through to the end.
Mr. Smead also mentions two banks. Banks are so tricky right now, because the interest rate environment is so tricky. Also, banks never work as hard at anything as they do at getting around the rules meant to keep them safe and stable. I’m always nervous about banks and their no accountability culture. All those executives fired for things like the Savings and Loans catastrophe, or the mortgage catastrophe, or whatever else? They just work at different banks now, usually in the same role they were fired from.
Add in the fact, that they bought up the brokerages after they went bankrupt after sleazy practices in the mortgage catastrophe, and you just have more slick finance guys concentrated in one place. So, you’ll forgive me if I don’t share Mr. Smead’s enthusiasm for JP Morgan and Bank of America and their approximately 3.5% yields.
You do need some financial exposure in your portfolio, so if you want individual stocks, these are no worse than your other options at the mega bank level. I prefer regional, or international banks which tend to be less apt to rule breaking and lawsuits. Look into Fifth Third Bank, or HSBC, or maybe ING.
As always, this article is for informational purposes only and is not an offer to buy or sell securities. This article is not investing advice, the author does not hold himself out to be a financial advisor. At the time of this writing, the author owned shares of Merck but that could change at any time without notification. Consult your own investment advisor or tax professional for investing advice specific to your situation.
