Dan Caplinger of the Motley Fool suggests 7 stocks that are cheap as a result of the recent downturn. Whenever there is a drop, there is always a discussion of bargain hunters coming in to snap up bargains -- can that work for long term investors? Certainly if there are strong dividend producing equities at bargain prices, it might be worth considering.
We examine this selection in the context of long term performance. We expect recent performance will be less than stellar but we look further back to see whether we can expect good long term performance or whether this is a set of equities that have volatile behavior which may be great for traders with a short term view.
|Illinois Tool Works (NYSE: ITW)||3.4%||(24.7%)|
|Northrop Grumman (NYSE: NOC)||3.9%||(21.7%)|
|Eaton (NYSE: ETN)||3.6%||(21.8%)|
|Analog Devices (NYSE: ADI)||3.3%||(21.8%)|
|Weyerhaeuser (NYSE: WY)||3.6%||(22.6%)|
|NYSE Euronext (NYSE: NYX)||4.7%||(20.4%)|
|Autoliv (NYSE: ALV)||3.6%||(22.5%)|
Source: Capital IQ, a division of Standard & Poor's. Returns from July 8 to Aug. 9.
We compare this with our benchmark ETF dividend portfolio that provides a greater degree of diversification.
|Asset||Fund in this portfolio|
|REAL ESTATE||ICF (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||TIP (iShares Barclays TIPS Bond)|
|Emerging Market||VWO (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||DVY (iShares Dow Jones Select Dividend Index)|
|US EQUITY||VIG (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||IDV (iShares Dow Jones Intl Select Div Idx)|
|High Yield Bond||HYG (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||EMB (iShares JPMorgan USD Emerg Markets Bond)|
- 7 Dividend Stocks on Sale August 2011 -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes,
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum,
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||8%||81%||11%||88%||10%||71%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||8%||67%||5%||17%||4%||16%|
|7 Dividend Stocks on Sale August 2011||0%||1%||2%||5%||1%||0%|
From a look at the numbers, this doesn't seem like an appealing portfolio. We see an increase in the returns over a three year period but a flat return over one and five years. This seems like a portfolio that does well in certain conditions but not in the long term.
The diversified set of ETFs still does a good job of delivering good risk adjusted returns in a range of difference conditions.
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.