If the first-quarter earnings season turns out to be as bad as the experts expect, then it may be time to look for safety. That means lightening up the load on high-risk stocks and shifting your focus to companies that you know will be around 50 years from now.
The search for safety appears to be the ongoing theme this year, especially within the blue chip stocks that make up the Dow Jones Industrial Average. The index is up 11.2%, ahead of the broader S&P 500, along with the NASDAQ and Russell 2000.
Small-cap stocks, which have been sizzling on the chart, have been underperforming in the recent weeks, as investors shift to the safety of blue chips and large-cap stocks.
The chart below shows the recent superior performance of the Dow Jones versus the NASDAQ, shown by the blue line, and the Russell 2000, the green line.
Chart courtesy of www.StockCharts.com
After the first week of April, blue chips have fared the best, down just 0.09% as of April 5, which is much better than the decline of 2.94% and 1.96%, respectively, in the Russell 2000 and NASDAQ. As the market risk rises—and I feel it is—I expect to see more money flow from higher-risk investments to lower-risk ventures, such as the blue chips.
The move to Dow blue chips is even more popular, given the dividends available on many of these stocks, which is attractive compared to historically low yields available with bonds.
When you are earning less than one percent on short-term bonds, the choice to look at dividend stocks and the equities market is easy.
The average dividend yield for the 30 Dow blue chips currently sits near 2.82%. The top-five dividend yields at this juncture belong to AT&T Inc. (NYSE/T), Intel Corporation (NASDAQ/INTC), Verizon Communications Inc. (NYSE/VZ), Merck & Co., Inc. (NYSE/MRK), and Microsoft Corporation (NASDAQ/MSFT). Now, I wouldn’t suggest dumping your capital into these stocks, as the higher yields may have to do more with the company’s prospects and resulting low share price than with the quality of the company.
Instead, I suggest you stick with the proven blue chip winners on the Dow Jones, which have shown their worth o to shareholders over the past decades and can help to shelter you during the bad times.
These companies are generally the “Best of Breed” stocks within their sectors.
Other top blue chips include: The Boeing Company (NYSE/BA), General Electric Company (NYSE/GE), Johnson & Johnson (NYSE/JNJ), The Coca-Cola Company (NYSE/KO), The Procter & Gamble Company (NYSE/PG), Wal-Mart Stores, Inc. (NYSE/WMT), Exxon Mobil Corporation (NYSE/XOM), and McDonalds Corporation (NYSE/MCD). (Read “The Secret to Success in the Fast Food Sector.”)
These blue chips have fared well and will continue to do so going forward, having proven themselves to be the heart and soul of America’s economy.
Investors Down-Shift Risk, Search for Safety Ongoing Theme for 2013 was last modified: April 10th, 2013 by George Leong, B.Comm.
George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »
Forecasts Aug. 29, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 29, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)