It doesn’t get much uglier than this week. Stocks plummeted, and about the only good thing to be said was that gold — and the related mining shares — finally caught a bid.
What’s going on here? The recession fears that have gripped Europe for months are finally coming home to America.
I’ve warned you all along that investors who thought the United States could entirely escape Europe’s problems were living in a fool’s paradise. The stock market rose way too far during the first quarter of 2012 on a puff of optimism about Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Salesforce (NYSE:CRM) and a few other tech names that were supposed to transcend the ordinary rules of economics. Now it’s payback time.
Fortunately, the market has corrected a lot of its excesses in the past few weeks (Even Apple is nearly 18% below its peak). While I suspect that some industry groups still have further to go on the downside, others are probably close to their final bottoms for the current downswing.
Accordingly, I recommend that you shop judiciously but steadily for bargains while the market remains down in this area. Among our model portfolio holdings, McDonald’s (NYSE:MCD) now represents solid value for investors looking to take an initial position or enlarge their stake.
In recent days, MCD’s dividend yield has popped above 3% — an important evidence of intrinsic value — for the first time since last November. From today’s level, I project a total return (dividends plus price gain) of more than 20% in the year ahead.
I’m also warming to certain old-line industrial companies that are remodeling themselves to compete in the new global economy. One such outfit is St. Louis-based Emerson Electric (NYSE:EMR).
I’ll have more detail on EMR later, but for now, though, let me just mention that, over the past decade, Emerson has boosted its net profit margin by more than 50% — a remarkable leap in efficiency.
The company is also strongly committed to shareholder interests. Dividends have been sweetened 55 years in a row, through good times and bad. What’s more, the current yield (3.5%) is double that of a 10-year Treasury note.
