Sometimes what you're looking for is hidden in plain sight. And if what you're looking for are some long-term conservative investments at good value, that's the case right now.
While everyone else is off hunting emerging-market equities and high-yield bonds, take a look at something really simple and obvious:
Blue chip U.S. equities.
Yep, the companies everyone knows, like
Johnson & Johnson
Procter & Gamble
These are the world's biggest, best run, and most respected companies. They're global. They have underperformed the rest of the stock market, here and abroad, for years.
And that means today they are looking like pretty reasonable values -- especially compared to almost everything else.
As Ron Muhlenkamp of the
Muhlenkamp Fund put it, "Right now, the Chevvies of the stock market and Cadillacs are all selling for the same price. Everything's about 17 times earnings." And if you can buy great stocks for the same price as mediocre stocks, why would you buy the mediocre ones?
Even Jeremy Grantham, who is deeply bearish, seems to be taking the same view. Grantham, the chairman of Grantham, Mayo and Van Otterloo, just posted his latest investment forecasts for different asset classes. On a medium-to-long time frame, nothing looks compelling right now, he says. The best, or the least bad asset class? "High quality U.S. equities."
His U.S. "quality" portfolio as of Dec. 31:
, Johnson & Johnson,
By a variety of long-term measures, U.S. blue chips are at their cheapest levels since the first half of the 1990s -- before the stock market blew up into a bubble.Price-to-earnings multiples can be misleading for making long-term comparisons because earnings can be very volatile. Instead, I looked at price to sales, price to book value, and dividend yields.
Some examples? Intel, now trading at just three times sales, hasn't been that low for any sustained period since the early 90s. At the peak of the bubble, in early 2000, it was at 15 times sales.
1% dividend yield is the highest since Bloomberg began tracking the data in 1990. Its stock price is 1.5 times sales, the levels seen in 1993. In 2000, the stock hit five times sales.
GE is at the same price-to-sales ratio (2.3) seen in 1996 and the same price to book value (3.3) seen in 1994. Citigroup's 4% yield is the highest it's been since the company took its current form in 1997.
Microsoft, which hit 29 times sales in 2000, is now 6 times sales, where it was in 1993. Procter & Gamble yields 2%, what it did in the early 1990s. Johnson & Johnson's stock hasn't been three times sales for any sustained period, as now, since early 1997. It hasn't yielded 2.5% since 1994.
Pfizer's stock price is back below four times sales, where it was in the early 1990s. At the peak of the bubble it was over 10 times sales, and if you bought its shares then, your returns have been correspondingly disastrous. Today's 4% dividend yield is the highest since 1990. And Merck's 3.5% yield is what it was during the "Hillarycare" panic of 1993.
Wal-Mart, by any measure, is as cheap as the stuff it sells. Its 1.6% dividend yield is four times what it was in the early nineties.
These stocks all skyrocketed to fantastic multiples in the late 1990s. (Intel, for instance, was briefly 16 times sales.) Those have now largely unwound.
One more factor: These are not just plays on the U.S. economy. They are plays on the global economy, including, especially, emerging markets.
Of course there are several exchange-traded funds that let you invest in big-cap names with a single click of the mouse. ETFs, or exchange-traded funds, are open-end investment vehicles that trade throughout the day on the stock market like an ordinary share.
DJ Wilshire Large Cap
invests across the big-cap names and has a 1.9% yield. Top 10 holdings: Exxon, GE, Citigroup, Microsoft, AT&T,
Bank of America
, P&G, J&J, Pfizer and
If anything, large-cap "growth" stocks are these days looking a better bet than "value" stocks.
holds Microsoft, P&G, J&J, Cisco, Intel, Wal-Mart,
, IBM and
as its top 10.
Possibly the most interesting is State Street's
Global Titans Fund
. It includes most of the above names, plus a few giants based overseas like
, Toyota and BP. The yield is an impressive 2.4%.
Like I said, hidden in plain sight.
In keeping with TSC's editorial policy, Brett Arends doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Arends takes a critical look inside mutual funds and the personal finance industry in a twice-weekly column that ranges from investment advice for the general reader to the industry's latest scoop. Prior to joining TheStreet.com in 2006, he worked for more than two years at the Boston Herald, where he revived the paper's well-known 'On State Street' finance column and was part of a team that won two SABEW awards in 2005. He had previously written for the Daily Telegraph and Daily Mail newspapers in London, the magazine Private Eye, and for Global Agenda, the official magazine of the World Economic Summit in Davos, Switzerland. Arends has also written a book on sports 'futures' betting.