The Wall Street Journal-20080123-R-O-I-- World-Wide Rout Has Created Some Value
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R.O.I.: World-Wide Rout Has Created Some Value
This has been quite a world-wide rout.
The one lesson I've learned the hard way is never to get too bearish or too bullish. Three months ago, as investor euphoria sent markets peaking around the world, I cautiously noted the apparent capitulation of the final bear. (Legendary fund manager Jeremy Grantham, for years one of Wall Street's most prominent and vocal bears, publicly threw up his hands in apparent surrender to the bullish herd in October.)
Today it may still be too early to plunge in heavily, but for the first time in quite a while, you can start to see some value out there, especially among blue chips and in some overseas markets.
Here are 10 high-quality stocks that, thanks to the latest collapse in share prices, now offer dividend yields of 3.5% or better. Notably, most of them are based in Europe, although most are multinational in scope. However, they all have depositary receipts in New York and are easily accessible to U.S. investors.
The companies on the list present varying risks. Most have strong defensive qualities that should allow them to ride out a recession. Two are major pharmaceutical companies. Pfizer and GlaxoSmithKline are out of fashion with investors due to their weaker drugs pipelines and slower growth. But the businesses remain stable and the shares are going pretty cheap.
European telecom giants such as Deutsche Telekom and France Telecom are seeing new service revenues offset the costs of tougher competition at home. I'll concede I've been a stale bull of Vodafone Group for years, but the world's largest operator of cellular networks is finally turning its cash machine into a dividend machine and it offers growth as well.
The list also includes Kraft Foods, the food giant, Ladbrokes, Britain's biggest bookmaker, and Rexam, a packaging company. All have strong defensive qualities: They're mostly exposed to the kind of consumer spending that tends of hold up pretty well even in a recession.
British clothing retailer Marks & Spencer is more exposed to discretionary consumer spending. But a lot of that has already been factored into the price: The shares have nearly halved since their peak early last year. Even some long-term bears have turned buyers on valuation grounds. And the yield is covered nearly twice by earnings, offering a decent cushion.
Pearson combines the defensive (education publishing) with the more cyclical (the Financial Times). But, again, the shares are no longer looking expensive.
This isn't a list of shares to rush out and buy. Investors need to do their own homework before buying any individual stocks. Prices could fall a lot further, and with equities there are no guarantees. I am sure some of these companies will do much better than others. Dividends can be cut. However, this list suggests that opportunities are starting to emerge.
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10 Stocks Worth a Look
These stocks all offer dividend yields of at least 3.5%.
Company (ticker symbol) Industry Price Yield
Pfizer (PFE) Pharmaceuticals $22.23 5.2%
Marks & Spencer (MAKSY) Retail 48.60 5.0
Ladbrokes (LDBKY) Bookmaker 5.41 5.0
Rexam (REXMY) Packaging 39.74 5.0
Deutsche Telekom (DT) Telecommunications 20.42 4.8
France Telecom (FTE) Telecommunications 34.80 4.7
Pearson (PSO) Publishing 13.22 4.5
GlaxoSmithKline (GSK) Pharmaceuticals 48.68 4.2
Vodafone Group (VOD) Cellular networks 34.05 4.1
Kraft Foods (KFT) Food 29.82 3.5
Sources: FactSet/Worldscope; WSJ analysis
