By Philip van Doorn, MarketWatch
Ken Wolter / Shutterstock.com
If you follow the stock market, this year’s story is familiar: Real-estate investment trusts, utilities and other stocks with attractive dividend yields have been very rewarding. But if you are looking for growth in your portfolio, this may be the right time to switch directions, according to Mariann Montagne, senior investment analyst and portfolio manager at Gradient Investments.
Looking at the 27 REITs included in the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.13% , 14 have returned at least 12%, with dividends reinvested, this year through Aug. 11. Meanwhile, the telecommunications sector, dominated by high dividend payers AT&T Inc. /zigman2/quotes/203165245/composite T +0.42% (returning 31% so far this year) and Verizon Inc. /zigman2/quotes/204980236/composite VZ +0.28% (with a total return of 20%), is up 20%, while the utilities sector has had a 17% return.
If I am going to get a 4% yield from a utility, is that really all I want for exposing myself to market risk?
Mariann Montagne, senior investment analyst and portfolio manager, Gradient Investments
“We’ve had an outsize position in REITs and we have taken a few of those off the roll, yet we have still found some REITs that look attractive to us,” Montagne said, during an interview on Aug. 11.
Gradient Investments is a third-party asset manager, based in Arden Hills, Minn. The firm manages about $1 billion in assets through its investment-adviser clients.
Montagne said the firm’s portfolio — managed for both income and growth — had a dividend yield of 3.86% at the beginning of the year. Following the rise in share prices and with moves away from utilities and other income-oriented stocks with low volatility, the portfolio yield has fallen to about 3.4%.
While Montagne said she thought the flight to yield by investors might continue, she added that valuations have become too high for many of the low-volatility names to be attractive. “If I am going to get a 4% yield from a utility, is that really all I want for exposing myself to market risk? Utilities don’t usually go up in value, especially when at 20-year highs for P/E,” she said.
The S&P 500 utilities sector now trades for 20.3 times trailing earnings. The sector’s trailing price-to-earnings ratio has never been this high since the beginning of 2000, which is as far back as this FactSet chart can go:
Looking ahead, Montagne likes higher-volatility stocks, and she named these five companies as good growth investments to consider right now:
|Company||Ticker||Industry||Price/ consensus 2017 EPS estimate||Growth of sales per share - past 12 months||Total return - 2016 through Aug. 11|
|Pinnacle Financial Partners Inc.||/zigman2/quotes/206544847/composite PNFP||Regional Banks||15.3||23%||5%|
|PNC Financial Services Group Inc.||/zigman2/quotes/203416310/composite PNC||Major Banks||11.5||1%||-9%|
|Adobe Systems Inc.||/zigman2/quotes/200389143/composite ADBE||Packaged Software||20.7||24%||8%|
|Skyworks Solutions Inc.||/zigman2/quotes/201417573/composite SWKS||Semiconductors||11.0||8%||-11%|
|Bunge Ltd.||/zigman2/quotes/208554679/composite BG||Agricultural Commodities/ Milling||10.8||-14%||-3%|
We included sales-per-share growth in the table, rather than revenue growth, since the per-share figures bake in any issuance of shares to fund acquisitions or other purposes, while also reflecting any buybacks of stock.
Pinnacle Financial Partners
Pinnacle Financial Partners Inc. /zigman2/quotes/206544847/composite PNFP +3.60% is a bank holding company based in Nashville, Tenn., with $9.7 billion in total assets as of June 30. The company completed the acquisition of Avenue Financial Holdings in July, bringing the combined bank’s assets to about $10.5 billion, with branches in 14 Tennessee counties.