Four value picks for 2014

A tripling of the market over the last five years has made it a difficult environment for value investors looking for ideas, writes Tsachy Mishal; difficult, but not impossible. Mishal has recently put money to work in four new investments:

Air Products & Chemicals (APD) has a lot more in common with Bill Ackman's successful moves than it does with boners like J.C. Penney and Herbalife, says Mishal. The appointment of a CEO in Q1 should be a catalyst, he says, as the new chief lays out his strategy and Ackman makes public his detailed investment thesis.

Trading at a steep 20% discount to book value, Annaly Capital (NLY) is the victim of year-end tax-loss selling and the fear of the effect of higher rates on book value, says Mishal. But the year is nearly over, and Annaly management has lowered leverage, hedged its book, and diversified into CMBS - it's well-positioned against further rate increases.

Eastman Chemical (EMN) has spent the past few quarters paying down debt from an acquisition, says Mishal, but starting in Q1 should begin using its ample cash flow to aggressively buy back stock. Management has an EPS goal of $7 in 2014 and $8 in 2015, and is on the record as saying acquisition targets are too expensive. That leaves share repurchases. Against his long in Eastman, Mishal is short ALB, CE, DD, DOW, and FMC.

Municipal bond closed-end funds are getting it from both sides - fears of higher rates and credit worries. Throw tax-loss selling into the mix and many are now trading at near-10% discounts to NAV and yielding almost 7% - the taxable equivalent of over 10%. "Municipal bonds offer the best after-tax, risk-adjusted return of any asset class." He's long: NRK, VMO, VKQ, PMO, NAN.

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Comments (17)
  • DeepValueLover
    , contributor
    Comments (11221) | Send Message
    The mREITS and munis offer a rather extreme value in comparison to the HOT tech stocks in 2014.


    Biggest opportunity since 2003 when it was the tech stocks in the deep value bargain bin...
    28 Dec 2013, 08:44 AM Reply Like
  • Steve Soden
    , contributor
    Comments (777) | Send Message
    Look to The Dow for Value.
    Alcoa is expecting more demand and
    is getting a big payback from "The
    Warehouse Scandal" that was
    discovered in early 2013.
    28 Dec 2013, 08:05 PM Reply Like
  • Hobar
    , contributor
    Comments (115) | Send Message
    Steve, what do you mean by saying that Alcoa is getting a big payback from "The Warehouse Scandal"? What are your statistics on that statement?
    29 Dec 2013, 12:12 PM Reply Like
  • turk617
    , contributor
    Comments (202) | Send Message
    I am long in nrk...also evy & mhi for my munis...all three also provide monthly dividends..munis should make make a nice comeback in 2014!!'
    28 Dec 2013, 08:50 AM Reply Like
  • Robin Heiderscheit
    , contributor
    Comments (3224) | Send Message
    Here's hoping for you but if we end 2014 with the 10 yr at 3.75 you make nothing for the year, maybe even a small loss.
    28 Dec 2013, 11:41 AM Reply Like
  • turk617
    , contributor
    Comments (202) | Send Message
    Time will tell!! Happy new year!!
    29 Dec 2013, 03:04 PM Reply Like
  • James Biringer
    , contributor
    Comments (171) | Send Message
    I started my NLY position at 10.20, added to it recently at 10.10, and doubled up at 10.82 on Friday. Next buy at 10.60 if it gets there. I'll sit on this position for the long haul.


    The sky is falling! Yeah, ok.


    Looking at NRK and the other Muni ETF's metioned above. Love value investing.


    Good luck to all sides of the trade.
    28 Dec 2013, 08:57 AM Reply Like
  • Pavlusha48
    , contributor
    Comments (70) | Send Message
    You mean 9.60. It is already trading at 9.83.
    28 Dec 2013, 09:29 AM Reply Like
  • James Biringer
    , contributor
    Comments (171) | Send Message
    9.82, amd 9.60, thanks for the correction pav.
    28 Dec 2013, 11:33 AM Reply Like
  • Jmgolf50
    , contributor
    Comments (14) | Send Message
    What do you think DSM and LEO?
    28 Dec 2013, 09:29 AM Reply Like
  • The Long Tail of Finance
    , contributor
    Comments (1722) | Send Message
    APD and EMN are near all time highs, so why bother now?


    NLY is the best pick...most beaten down. And you'll get paid to wait.
    Munis too, but I prefer to buy the bonds individually, not via ETPs.
    28 Dec 2013, 10:34 AM Reply Like
  • Regarded Solutions
    , contributor
    Comments (20531) | Send Message
    Go with the flow kids.....
    28 Dec 2013, 10:58 AM Reply Like
  • rsphillips
    , contributor
    Comments (41) | Send Message
    BBN build. America bond closed end fund with blackrock has a yield of 7% .
    28 Dec 2013, 11:28 AM Reply Like
  • chopchop0
    , contributor
    Comments (5217) | Send Message
    DOW has been printing new 52-week highs for several months now. Hopefully that's a new position, otherwise he must be crying uncle between paying those dividends and watching the stock go up.


    I guess he didn't understand the concept of the domestic oil/nat gas boom and how that has been a boon to refiners and input costs for chemical companies like DOW.
    28 Dec 2013, 10:55 PM Reply Like
  • oilman545
    , contributor
    Comments (64) | Send Message
    I don't agree that NLY is lower due to tax selling. Its been selling off since July and its revenue stream has been lower each quarter along with its dividend. That doesn't mean its not a good buy at this time for the reasons pointed out, but the tax selling is just not in the data.
    28 Dec 2013, 11:22 PM Reply Like
  • funfundvierzig
    , contributor
    Comments (4663) | Send Message
    After getting rid of its $5 billion automotive paints in the past year, and soon-to-be Teflon and TIO2 and chemicals, the much shrunken DuPont which remains will be only a second-place player in the agricultural and food arena. DuPont is a pronounced laggard to Monsanto in seeds, to Syngenta and Bayer in crop protection chemicals, and to Novozymes in enzymes and food additives. At nearly $65 at share, DD is arguably substantially over-valued. Investors might be better off in the shares of the global leaders which comprise DuPont's intense competition...funfun..
    29 Dec 2013, 01:24 PM Reply Like
  • Scooter-Pop
    , contributor
    Comments (4785) | Send Message
    Bought PMO & VKQ today
    16 Jan 2015, 04:11 PM Reply Like
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