Who would risk 90% of his money for the chance to earn 5%?...
Yields on longer-term Treasurys continue to slide.
The 10-year note is at 1.7% as I (Porter) write this. Its previous low from April 1988 until just before the 2008 economic crisis hit was about 3.1%. The "long bond," as the 30-year Treasury is called, yields 2.9% today, less than the 10-year note's pre-crisis low. The 30-year Treasury's low during the 1988-2008 period was a little more than 4%.
So investors seeking decent returns for their money aren't looking at Treasurys anymore. They're looking at dividend stocks for growth, and they've made tremendous gains. I think this trend can last a long time. Although the valuations aren't as low as they were a year ago, quality dividend-paying stocks are still relatively cheap.
If you look at a five-year chart of the 30-year Treasury and a five-year chart of Johnson & Johnson – certainly a well-known dividend-payer and -raiser – you'll find the long bond has outperformed Johnson & Johnson (JNJ). The 30-year Treasury is up about 35%, and JNJ's up about 25% over the period.
That 25% capital gain in JNJ over five years is not great. It's below average. So what would you rather have, the 30-year bond or JNJ?
If you tell me I have to buy either JNJ or the 30-year Treasury, that's easy… I'm buying JNJ. I would rather have one of the world's great businesses, one that raises its dividend every year. It's got great products and great brands.
As long as that choice is so clear, you'll see these dividend stocks continue to perform.
Where do I think Treasury yields will bottom? I'm taking a pass on that question for two reasons.
No. 1: As long as the Fed is buying essentially all of our newly issued debt, no one can say what the real market is for Treasurys. We don't know because the market is being manipulated by "quantitative stealing." (Quantitative easing is the monetary policy used by central banks to increase the money supply by buying government securities from the market.)
I can't give you a forecast for a rigged game. There's just no way. I have no special insight into how crazy the political leadership in this country will become.
No. 2: The question is irrelevant. There is no reason in my mind for anyone to be buying bonds from the U.S. government. The government is functionally bankrupt, so why buy its fixed debt obligations? It makes no sense.
Now, you might say, "Well, I think Treasury yields will go down, and I want to make some easy money." Great. So you'll try to make 5% or 10% this year on an instrument where you deserve to lose 90% of your money just for holding it. That's a really dumb thing to do.
– Porter Stansberry with Sean Goldsmith
Some investors see Treasury bond yields continuing to fall and think this is a good opportunity to make 'easy money.' In today's Digest Premium, Porter explains why that's a bad bet... and describes a better place for those investment dollars…
To continue reading, scroll down or click here.
Some investors see Treasury bond yields continuing to fall and think this is a good opportunity to make 'easy money.' In today's Digest Premium, Porter explains why that's a bad bet... and describes a better place for those investment dollars…
To subscribe to Digest Premium and access today's analysis, click here.
In today's DailyWealth, Steve Sjuggerud updated readers on where we stand with the "Great Migration"…
The Great Migration is Steve's thesis that "Mom and Pop" are about to pour money into the stock market. They can't live on zero-percent interest. That's about to force them out of cash and bonds and into equities.
This is all part of Steve's larger thesis, which he calls the Bernanke Asset Bubble – the idea that asset prices across the board will soar thanks to the government's easy-money policies.
Steve says we're currently in Act I of the migration: Mom and Pop are buying safe, dividend-paying stocks today, like Johnson & Johnson and Coca-Cola.
As you can see, Johnson & Johnson has soared over the past year…
Steve wasn't our only analyst to predict this trend. Brian Hunt and Amber Lee Mason, co-editors of DailyWealth Trader, said in January 2012 that large, dividend-paying companies would become the fashionable idea for large-fund managers. Big investment houses could avoid risk in favor of getting paid steady and growing dividends. Many blue-chip stocks at the time boasted dividend yields higher than Treasury yields.
While cash has been moving into safe, dividend-paying companies, other companies with more growth potential have been left out in the cold…
The Wall Street Journal published an article today discussing the popularity of dividend-paying stocks compared with growth stocks that pay lower (or no) dividends.
Analysts expect consumer-products giant Procter & Gamble to generate earnings growth of 6% this year. They expect Internet giant Google to return 16%.
You would expect Google to be the higher-valued stock due to its greater earnings potential. However, P&G trades today at 18 times projected earnings compared with its five-year average of 15.4x. Google's price-to-earnings ratio is 16.6x, below its five-year average of 17.2x.
The Journal attributed the difference in valuation to P&G's 3.1% dividend. Investors prefer an assured, modest return over less certain, but potentially larger gains.
The high relative valuations of dividend-payers are "the biggest glaring discrepancy I see in the market," James Swanson, the chief investment strategist for the $350 billion asset-management firm MFS Investment Management, told the Journal.
"You have these tech companies that have double-digit earnings growth, no debt, huge cash balances. And they're trading at 12 times forward earnings, while you have a utility in Ohio at 16 times earnings," Swanson said. "If you don't think there's a recession coming, how far do you go with this game?"
One of the most spurned sectors has been technology stocks, though some of those companies, like Microsoft and Intel, also sport large dividends.
Bloomberg published an article this morning stating "tech stocks are the cheapest in seven years." The sector, led by Apple and IBM, trades at 13 times projected earnings. That's its lowest level compared with the S&P 500 (which trades at 15.6 times earnings) since Bloomberg began tracking the data in 2006.
Technology stocks have fallen because some high-profile names recently released disappointing earnings. Apple announced its first year-over-year drop in quarterly profits in a decade last week. And IBM missed forecasts for the first time since 2005.
But Steve believes large technology stocks will be the next to rally. From today's DailyWealth:
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We're well into Act I. But I keep looking ahead to Act II and Act III, where Mom and Pop will take on more and more risk. I keep thinking that we must be near the end of this period of "safe" stock-buying, as these stocks have run up a lot.
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Our script says the next step for Mom and Pop – Act II – will be to take on a bit more risk and buy Big Tech stock names (like Apple). I still believe these stocks will be the next to soar. But that hasn't happened yet.
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Big Tech stocks are dirt-cheap today. The median forward price-to-earnings (P/E) ratio of the top eight holdings of the Dow Jones Technology stock index is just 11. That's crazy-cheap! And it gives us an enormous upside opportunity when Big Tech stocks finally take off.
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While I'm personally looking forward to Act II getting underway, we're not there yet… Safe, dividend-paying health care stocks are moving higher while technology stocks are still behind.
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Retirement Trader editor Dr. David Eifrig also thinks the technology sector is undervalued. In his latest issue, he alerted readers to an options-trading opportunity surrounding one of the most popular names in technology today. This company "is one of the great innovators of the last 40 years," Doc wrote. "Its products have created and defined whole segments of the technology industry. Its brand is iconic... And yet... the market has been selling this company's shares relentlessly."
On cue, the technology sector rallied today. Apple jumped almost 3%. IBM is up 1.7%. Microsoft is up 2%. And Intel gained 1.3%. That compares with the S&P's 0.6% gain today.
New 52-week highs (as of 4/26/13): Advent Claymore Convertible Securities & Income Fund (AVK), iShares MSCI Singapore Index Fund (EWS), SPDR International Health Care Fund (IRY), SPDR Barclays High Yield Bond Fund (JNK), SPDR Utilities Sector Fund (XLU), Prestige Brands Holding (PBH), and Calpine (CPN).
A slow mailbag today… Not enough time to stew and write over the weekend? Send your notes to feedback@stansberryresearch.com.
"Hey Porter, read with interest about your view of USA today. Served in military, many years ago. Socialism/communism were the enemy. Today we are the socialist. I am hated in my own country due to my view is same as founding Fathers. belong to no political groups. WE are a Nation of sheep, followers. 'The Horror, the Horror, Col. Kurtz, Apocalypse Now." – Paid-up subscriber JL
Regards,