By Michael Brush, MarketWatch
Sadly, the stock newsletter industry is still rife with shady characters, marginal analysts and overly aggressive marketing.
But below are three newsletters whose views are worth considering (aside from my own stock letter of course, but then I have a bias). All have good long-term records, and I like to check in with them near the start of each new year for a 12-month outlook and their favorite stock ideas. I’m featuring all value investors, a contrarian call since value is so out of favor. Don’t worry. It will come back.
John Buckingham, ‘The Prudent Speculator’
Like me, Buckingham watches investor and media sentiment for a contrarian read on where the markets are headed. In the reverse thinking of contrarianism, lots bullishness means limited upside, and vice versa.
He currently sees enough fear to suggest more gains from here, and I concur. His thinks we could see 10% gains in the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.74% in 2020. Inflation seems like a potential risk because it could have the Federal Reserve raising interest rates, which can hurt stocks. But rising prices aren’t all bad for stocks. Inflation hits bond funds. This would drive money into stocks. Inflation is usually caused by a strong economy — also good for stocks.
His preferred sectors are consumer discretionary and financials. They haven’t performed as well, so that’s where you’ll find bargains.
• Foot Locker: This athletic footwear and apparel chain /zigman2/quotes/204092533/composite FL +0.85% has been hammered. It is trading near 52-week lows on concerns it will get “amazoned” by Amazon.com /zigman2/quotes/210331248/composite AMZN -0.45% . Investors also worry that Nike /zigman2/quotes/203439053/composite NKE +3.24% and Addidas /zigman2/quotes/206448829/delayed XE:ADS +8.42% /zigman2/quotes/203671926/composite ADDYY +7.59% will more aggressively sell direct to consumers.
But Footlocker has upped its website game to compete with Amazon.com. However, the reality is people like to try on shoes before buying, so Amazon.com might not really be such a threat. “We still think there is a place in the world for Footlocker,” says Buckingham.
The company has a strong balance sheet with $5 a share in net cash, solid cash flow backing a 4% dividend yield, and a low forward price/earnings multiple of 8.
• Prudential Financial
As with banks, insurance stocks have been suppressed by concerns about low returns on investments because of low interest rates. Prudential Financial /zigman2/quotes/203750923/composite PRU +0.32% trades at eight times forward earnings compared with a historical average of 11.
But this negative dynamic will change — and put a bid under these names. “Interest rates are likely to tick a little higher, and that will be a catalyst to get folks interested in the insurance space,” says Buckingham.
Prudential is also expanding its reach via a recent acquisition. It is boosting margins by improving productivity and pricing. The stock pays a 4% dividend yield.
Kelley Wright, ‘Investment Quality Trends’
Wright sees further gains for stocks in 2020 thanks to decent economic growth, low rates, and the apparent resolution of geopolitical risks like Brexit and trade disputes. However, he expects a lull after the first quarter as investors weigh election outcomes.
Wright likes out-of-favor groups, and right now that means financials. His stock letter runs a “Timely Ten” list of particularly cheap names. Now it’s mainly financials. Wright uses dividend yield as a valuation metric. He tracks the repetitive high yield, or the dividend yield peak that historically signals a bottom in a name. As stocks fall, dividend yields rise. So a peak yield suggests a maximum stock drawdown.