More warnings over "safe" stocks

"The Safety Bubble Deflates," goes the title of a new report from Bernstein's Seth Masters, adding his name to those voices suggesting "safe" assets have become otherwise.

Even though utilities, telecom, and consumer staples have underperformed of late, says Masters, their relative valuations are still well above the average over the last 50 years. "In periods of stress, investors tend to prize stability and safety too much. But in time, investors discover that every investment carries with it some degree of risk: if not risk of loss, then risk of inadequate growth."


Barron's Jack Hough says the "low beta" approach is a flawed one: First, volatility can change quickly as companies' or industries' fortunes shift; Second, beta tells one nothing about whether a stock's valuation is high or low. In a similar warning over low volatility stocks, BAML suggests looking for companies with smooth earnings rather than smooth stock prices. Screening for such, Hough finds CSX Corp (CSX -0.6%), DuPont (DD +0.6%), Cisco (CSCO -0.6%), and Halliburton (HAL -0.8%).

Low volatility ETFs: SPLV, USMV, ACWV

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Comments (7)
  • Hillbilly Stock Star
    , contributor
    Comments (746) | Send Message
    $CSX I am bullish as upgrade to Port of Miami will totally change East Coast logistics IMO, $CSX long ( heavy )!
    8 Jan 2014, 10:38 AM Reply Like
  • dctodd27
    , contributor
    Comments (119) | Send Message
    Smoothness of earnings doesn't tell you anything about valuation either...
    8 Jan 2014, 12:13 PM Reply Like
  • hahaha48
    , contributor
    Comments (1412) | Send Message
    very true.
    a good example is when there is a change in technology or environment that changes the business. For many decades AT & T has very stable growing revenue and earning due to its monopoly. When that ends it went down hill very quickly.
    8 Jan 2014, 12:40 PM Reply Like
  • mydogmoe
    , contributor
    Comments (1428) | Send Message
    Barron's Jack Hough says, is enough for me to keep some safe equities. Most of these writers don!t have a dime in the market and are excellent contrary indicators. Remember last year's cover story about Tesla being a $50 stock. We'll six months later it's a $150 stock....
    8 Jan 2014, 01:19 PM Reply Like
  • mydogmoe
    , contributor
    Comments (1428) | Send Message
    Of his four likes, I am long CSX and hold DD in a Trust account...
    8 Jan 2014, 01:23 PM Reply Like
  • combatcorpsmanVN
    , contributor
    Comments (1362) | Send Message
    $CSCO - whenever I read a WS 'anal yst' telling the world that traditional notions of valuation, safety of principal, or some other tried and true indicia of stock research were now unimportant; I have to laugh out loud. In 2000, Cramer, Mary Meeker and Henry Blodgett were saying, about the internet, "we're in the 2nd inning of a 9 inning game" or 'traditional methodology of valuing stocks no longer applies" or ' there is a new paradigm of valuing companies', or 'this is the beginning of the new industrial revolution" referencing companies w/ PE's north of 50x were no longer overvalued and on and on and on.


    Well, history says otherwise. Low Beta stocks may not race up the share price appreciation pole like high flying momentum stocks but they don't fall out of very tall trees either when there is a glitch in the revenue stream or signs of a better mouse trap come along. And, usually low Beta stocks pay decent dividends and satisfy value investors criteria.


    WS analysts are too prone to parrot whatever the firm says needs to be regurgitated to the public in order to create volatility aka movement in client accounts. Analysts are tasked w/ getting revenue into the firm and keeping clients moving in and out of positions helps meet that goal.
    8 Jan 2014, 05:02 PM Reply Like
  • Jake1907
    , contributor
    Comments (254) | Send Message
    Can anybody explain to me why so many Pundits want to throw the P/E out of the window?


    I have not read about anybody beating the system used by the Graham and Dodds and Bufetts of the world.


    A P/E is a good starting point to begin one's evaluation of a stock


    Example 1. ANNUAL Earnings: $1.00 . 2. multiply G&D's number of 15. 3. Answer: $ 15.00
    Doesn't this means you will earn your money back in 15 years?


    If this is true, then why would anyone look at PEs like 50, 65, even 100.
    Does anyone think the will live that long to earn back their money?


    I am with Jack.


    I currently own DD and CVX and am pleased with the results. I am also, contiplating buying som CSX


    8 Jan 2014, 10:59 PM Reply Like
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