If the most go-go stock in this market sells at 15x next year's earnings, none other than Google (GOOG), I don't want to panic about valuations as we hit these all-time highs. If six out of 10 major S&P 500 groups aren't back yet to where they were in October 2007, I am not going to run from this market with fear. I am going to look for stocks to buy.
I know that this is a particularly bad moment to recommend stocks. You don't ever want to start buying huge today, but I am pleasantly surprised at how many stocks are still well off their highs that make a ton of sense to me. Just consider these six laggards of these six lagging groups.
First, financials. Here I can't believe that KeyCorp (KEY) is down an astounding 71% from where it was in October 2007, even as the bank has done so much to get its act together and is just now starting to loan more aggressively. This is a national-footprint bank with branches that could be sold and businesses that could still be rationalized. KeyCorp and Hartford Financial Services Group (HIG) are way too cheap, considering their book value and earnings. We own them both for the Action Alerts PLUS portfolio, and we are buying them now.
AT&T (T) and Sprint (S) are down 19% and 67% from where they were, even though AT&T has solidified its lead and repeatedly raised its dividend, and Sprint now has a partner in Softbank that will allow it to at least keep pace with the big dogs. I like AT&T here very much, and after the Sprint-Softbank deal closes, I will probably get behind that one hard, too.
The utilities, even as they have been on fire, are still not back to where they were, and here I like PPL (PPL) and Public Services Enterprise Group (PEG), at yields of 4.6% and 4.3%. Should they really be down 37% and 26% from their highs back then? I also like Ameren (AEE) which is off big, too.
Minerals and materials are a tough call. I am not a fan of DuPont (DD), down 1%, or Newmont Mining (NEM), down 15% and Dow Chemical (DOW), the big dog, down 28% from their October highs. I am taking a rain check. Nor am I drawn in particular to the energy sector, which hasn't surpassed its old levels but, to me, has a negative bent, given the decline in the commodity. Can't please everyone.
But I think that that there are terrific values in the last of the underperforming sectors, the industrials, notably General Electric (GE), which is off an astounding 43% from where it was. Frankly, can I just say, that's ridiculous. GE is a huge position for Action Alerts PLUS, and I always, when duking things out with Stephanie, my partner, want it to be even bigger. I think that GE is a much better company than it was back then. The disparity is eye-opening and, I think, dead wrong.
That's why I believe it is the most attractive stock in the Average that's so near and dear and record-breaking to us all.