NEW YORK (TheStreet) -- A recent study by Marc Gerstein has found that "low noise" stocks such as Kraft Foods (KRFT), The Clorox Company (CLX) and Dr Pepper Snapple Group (DPS) perform better over time. These companies have superior profit margins and return on equity. Each of these stocks also has an above average dividend yield, so the long term total return should be even more rewarding for the shareholders.
Gerstein has separated equities with high levels of "value" from those having high levels of "noise." This was accomplished utilizing profit and equity measures.
He defined "value" as after-tax operating profit divided by an estimated cost of capital; what remained (growth expectation, stories, dreams, predictions and sentiment) as noise. Low-noise stocks returned 16.3% annually over the ten-year test period, with those with a low value registering a return of 8.9%.
Established consumers stocks like Clorox, Kraft Foods and Dr Pepper are the ultimate low-noise investments for a variety of factors.
There is no need for predictions and sentiment in the consumer goods sector. That is especially true for high-noise equities like Amazon (AMZN), which is barely profitable with a price-to-earnings ratio of over 600 and a return-on-equity of under 4%. But Amazon's continuing double-digit growth is so compelling that the share price is up more than 40% for the last year without paying a dividend.
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