Value Investing Is in Style Again!

by Richard Band | February 21, 2014 10:39 am

Welcome back!  For much of 2013, it seemed investors were buying stocks almost willy-nilly, without regard for traditional value benchmarks.  This year, “our” kinds of stocks are coming back, big time.

Just look at Public Service Enterprise Group (PEG[1]).  In 2013, the New Jersey-based electric and gas utility posted a 9.4% total return—very respectable in an ordinary year, but rather blah in a year when the S&P 500 index returned nearly 32%.

Today, Peggy, as old-timers call the ute, reported Q4 earnings ahead of the analyst consensus.  PEG also issued 2014 guidance that topped Wall Street forecasts.  The stock soared 4.5%, a sizable one-day move for any blue chip equity and exceptional for a utility.

As of today’s close, Peggy’s total return for the year to date stands at 14%—more than the stock delivered all last year, despite a flat S&P.  Three cheers for truth, justice and the American Way!

But the good news doesn’t stop there.  Oil and gas producers were seriously out of favor last year, with few arousing more scorn than BP (BP[2]) and Royal Dutch Shell (RDS.B[3]).  Who would want to own BP with its billions of Deepwater Horizon liabilities, and Royal Dutch with its failed Arctic drilling program?

Well, who but us, incurable contrarians!  Lo and behold, both stocks made today’s list of new 52-week highs.

I could go on with many other examples, but you get the point:  The “changing of the guard” we’ve been looking for has arrived.  It’s happening right under our noses.

Of course, all this sudden prosperity creates some problems.  Many stocks have moved up and out of buy ranges.  If you’re thinking of putting new money to work, you’ll need an extra measure of patience and selectivity until the market gives us a pullback longer than the 12-day wonder we had in late January and early February.

In the meantime, consider shoring up the fixed-income side of your portfolio.  If you’re sitting on too much zero-yielding cash, shift some of it to a fund like PowerShares Senior Loan Portfolio  (BKLN[4]).  BKLN invests in corporate bank loans that carry a “senior” claim on the borrower’s assets.

While I wouldn’t want to hold a bank-loan fund through the next recession (defaults would rise, driving down the fund’s net asset value), I don’t foresee much, if any, risk of such an event in 2014.  In other words, I think BKLN is a safe enough parking place for your cash here and now. Current yield:  4%.

If you’re willing to accept somewhat greater fluctuations in your principal value, look into Babson Capital Global Short Duration High-Yield Fund (BGH[5]).  As the name implies, this closed-end fund circles the globe in search of high-yield (“junk”) bonds with short maturities.

BGH also borrows money, at short-term rates, to enlarge its portfolio.  As a result, the fund yields a lip-smacking 8.5% with monthly dividend distributions.

Again, I wouldn’t care to own BGH during a serious economic slump, but I think your money is safe for now.  In 2013, the fund easily outperformed its high-yield peer group with a 13.9% return at net asset value.  So far in 2014, BGH is again powering ahead of the competition.

  1. PEG:
  2. BP:
  3. RDS.B:
  4. BKLN:
  5. BGH:

Source URL:
Short URL: