If you go through the charts you can't help but be depressed -- so many downtrends, so little support. That's what happens after a prolonged downturn like we have been having. That's what the bear has done already to so many stocks.
But what if you want to wade in? What if you decide that you can't wait for things to get better and that you don't think there is going to be a recession and that the Fed will see that its first rate hike, coming when the U.S. and the world's economies were softening, was not something it should repeat any time soon? What if you have a lot of cash and think you should be buying? What should you reach for that might have some protection if you are too early, especially when we are so oversold?
This weekend I tried to run a screen from the S&P Capital IQ chart book -- which now, pity, comes in a PDF -- looking for some bargains and it's no revelation that the downturns are severe, myriad and sickening. I didn't even want to complete the task as the charts are monotonously hideous. It's impossible to even think bullish for a nanosecond let alone be bullish when you see the destruction. Without the Fed saying "we're done for a while," or China coming back, as viewed by its stock market and the pitiful Baltic Freight Index (which is at an ultra-low 373) and oil bottoming by, say $25, I don't know how we can mount a rally and reverse the direction of so many stocks.
But if you leave the table now, with the S&P oscillator about to take out its lows of 2011 when there was worldwide systemic risk instead of a cyclical downturn as we are having, you could regret it.
So, what do you do?
I set up some parameters to find the stocks of companies selling below a market multiple of 16x for the S&P 500 with an above-average 3.75% yield and a dividend that I think is not only sustainable but can grow. That eliminated every oil and oil-related stock, as I have said repeatedly there isn't an energy stock in the world right now that doesn't need to raise capital. So forget them as yielders. Put them out of your mind unless you are an insanely bullish contrarian about oil.
Scanning the list, I can tell you, first of all, that after this decline there are plenty of stocks with yields north of 3% but not nearly as many over 3.75%, which seems to be a real dividing line. I think we would all agree that anything less than 3.75% in this environment isn't enough protection given that it's pretty easy to see an 8% decline in the indices morph into an 11% selloff, so that's where I have chosen to make a stand. Who knows, a lot of the 3.5 percenters could be 3.7ers by the end of the week, when I can do a whole new list.
On average, these stocks are cheap on both last year's earnings and this year's estimates and they can afford to pay you that protection. They will most likely bounce on any good news and preserve the downside given how scant the yield is on the 10-year. Before I go to the list I eliminated some obvious high-yielders like Caterpillar (CAT) at 5.14% and Seagate (STX) at 8% because I am concerned that both might have coverage problems. Caterpillar is just too linked to China and Seagate is too tied to personal computers, something that Intel (INTC) made clear last week is a not so hot linkage.
I also chose not to list some of the real estate investment trusts where I did not have any visibility. And when it comes to utilities, my charitable trust owns American Electric Power (AEP). I see no reason to list others as the group is very expensive. It's a safe haven that's being too sought after for my taste. I have some other very high yielders that I trust at the last part of this series, but I am in a minority in having faith in them, so I am putting them at the end along with a couple of others that some think are in very good shape but I am concerned about.
First up are some 5% yielders I can make peace with. AT%T yields 5.6% and sells at 12x earnings. I know it has very little growth, but it might be able to derive some from its purchase of DirecTV. I am not worried about the coverage.
Verizon (VZ) clocks in at 5% as it has better growth than AT&T and I think some promise in Fios, which is a very strong cable-like offering. Both this stock and T should be able to continue to boost their dividends.
Then there's GM (GM) and Ford (F), both of which are at 5%. Ford's down huge from just five years ago, even as it is in much better shape. The issue is that Ford's been stymied by Latin America and Europe and while Europe has gotten better Latin America has gotten worse. The United States doesn't inspire either. It's telling that the company's most recent guidance was for a flat or slightly up 2016. General Motors, on the other hand, increased guidance -- it sells for only 6x earnings -- while upping its buyback and bumping its dividend. The stock's down from the earnings announcement, though. I like it here and would love it at $28.
Tupperware's (TUP) a company that just reported superior earnings that could have a very bright 2016, at least according to Rick Goings, who recently came on "Mad Money" to talk about a very nice upside surprise. I think that Tupperware's being brought down by its cohorts, namely Avon (AVP) and Herbalife (HLF), but it is a far superior operator to both and has a strong emerging market following. Its 5.42% yield seems very safe and a dividend boost seems like a distinct possibility.
I like Ventas (VTR), even as I know the long knives are suddenly out there for anything that's related to elder care. I think that's a mistake and Ventas is a superior operator. Its 5.78% yield seems outsized to me vs. the consistency that Debra Cafaro has offered during her tenure as CEO.