This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Still finding bargains in this stock market

Stocks in this article: PG

By Karagosian Financial

The last quarter of 2013 was a tough act to follow as was the full year. The year 2014 had a slow start in the U.S. stock market. With January down, February rebounding and March moving sideways, domestic stock indices managed to have a flattish first quarter.

The S&P 500 Index (SPX) was the best performing out of the three major U.S. indices with an increase of 1.3%. (It also hit a record closing high on the first day of the second quarter.) The Dow Jones Industrial Average (DJIA) had a loss of less than 1% and the Nasdaq Composite (COMP) gained a fraction of a percent in the first quarter. Given the crisis in the Ukraine, a banal stock market performance was tolerable.

The trailing 12 month P/E ratio of the S&P 500 is approximately what it was a year ago (17.0% as of April 21). Even though stock prices in the aggregate rose quite a bit, valuations at least for this index have not. Also the dividend yield is still a healthy 2.0% or so, just slightly below this time last year.

The trend of dividend increases has carried into 2014. Recently Procter & Gamble (PG) announced a dividend increase adding to another fifty or so large companies announcing dividend increases in the first quarter.

Healthcare stocks again were one of the better performing sectors last quarter as they were at the end of 2013. The best performing group,though, was utility stocks, increasing 9% in the first quarter. These stocks typically do better when interest rates are declining which is what happened at the start of 2014.

Utilities are typically purchased for their attractive yields therefore when bond yields decline their dividend yields appear more desirable. REITs (Real estate investment trusts) also did very well last quarter for similar reasons.

Consumer discretionary stocks had the worst performance by far in the first quarter with a loss as a group of over 3%. The especially bad winter weather was often blamed for the poor performance in this sector which includes companies such as retailers, and auto manufacturers.

Foreign developed markets, as represented by the MSCI EAFE (based in US dollars) index, were actually unchanged for the first quarter. Surprisingly with the conflict in Eastern Europe, the European markets did better than the Asian markets. Many emerging markets declined last quarter both in local currency terms and when measured in U.S. dollars on slowing growth concerns, particularly in China. Interestingly, the MSCI East Europe index excluding Russia was one of the few positive emerging market indices in the first quarter.

After a posting a rare negative total return last year, bonds rebounded in the first quarter of 2014. Although most investors expect that the long term trend in interest rates is that they will go higher, in the near term it is hard to predict (same as the stock market).

The Barclays U.S. Aggregate Bond index had a total return of 1.8% last quarter. The best performing bond market segment was long term Treasuries with a gain of 7%. Although the Federal Reserve has continued its tapering of buying longer term Treasuries, demand for these securities was met by investors seeking "safety" in addition to probably some portfolio rebalancing as demonstrated by bond fund inflows in the first quarter.

As of March 26th, bond mutual fund inflows year to date were $21.7 billion (which compares with domestic stock inflows of $16.4 billion).

Emerging market bonds, in contrast to EM stocks, fared relatively well last quarter with a gain of close to 4%, although it was a very volatile period. Municipal bonds also had a good showing as the Barclays Municipal Bond Index returned over 3%.

A lack of new tax free bonds coming to the market led investors to bid up existing bonds. Investment grade bonds had a solid first quarter performance (2.9%). With a low risk of default, they continue to have a slightly positive yield compared to Treasuries.

What's the outlook for the market? Even with large gains in 2013, valuations remain similar to the year- ago period. This tells me that profits, in the aggregate, have nearly kept up with stock price increases; thus the market did not become increasingly expensive.

At current prices I am still finding plenty of good buys in the stock market. Bond yields are still depressingly low, but improved. In general, bond prices will likely continue suffering, but be partially offset by the coupon it pays.

Factors that might temporarily boost stock market returns are the increased flow of funds into equities (something that started occurring again in late 2012), and continued mergers and acquisitions and dividend increases stemming from huge cash stores on the balance sheet. These are all things we have covered the past three years and little has changed.

In my opinion, I do not expect much help from the government. My reasoning is that if it could have been done to boost the economy, it would have been done already, and in the current political environment, further initiatives such as tax cuts are unlikely in the near future.

Investors should consider this; since the great economic meltdown of 2008, it has been a very bumpy and painful road for Americans. Yet, since January 2009, the stock market has just about doubled (up 98%). This is a reflection of profits that have recovered and balance sheets that are likely the strongest in a half century.

Companies have simply become more efficient. Unfortunately, this increased efficiency and the elimination of many industry bubbles; i.e. real estate, are keeping unemployment high. No, the economy has not roared back, but there remain many sound investments that should do even better when the economy accelerates.

DISCLAIMER: The investments discussed are held in client accounts as of March 31, 2014. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

Karagosian Financial

Karagosian Financial

The professionals at Karagosian Financial Services have more than 40 combined years of research and investment management experience in strong

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs