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The Science of Hitting
The Science of Hitting
Articles (412) 

"A Very Unique Period of Time" - A Quick Case for Blue Chips

January 28, 2012 | About:

With so much going on in the macroeconomic environment, it’s easy to run from an intelligent investment approach and instead cower away from equities; the words of an investment guru should hopefully abate some of that fear and help individual investors confidently invest in some fantastic businesses selling at cheap prices...

In a recent interview (here), Consuelo Mack of Wealth Track spoke with Donald Yacktman, who runs the Yacktman Funds; for those searching for a successful investment strategy, look no further: in the past three, five, ten, and fifteen year periods, the fund has beat more than 99% of its’ peers. During the interview, Mr. Yacktman had this to say:

“I’ve been doing this for over forty years, and I can’t remember another period of time where I’ve seen so many high quality, profitable businesses selling at prices relative to the market this cheaply. To give you an illustration, the 30 year treasury today [January 5th, 2012] has a lower yield than many of these companies like Pepsi (PEP) or Johnson & Johnson (JNJ) or Procter & Gamble (PG). That’s a very unique period of time.”

At the close on Friday, the 30-year Treasury yielded 3.07%. This compares to 3.13% for PepsiCo, 3.27% for Procter & Gamble, and 3.48% for Johnson & Johnson; in addition, while the Treasury yield will stay stagnant for more than a quarter of a century, lets look at how these companies have faired historically: since 1987, PEP, PG, and JNJ have increased their dividend payouts (per share) more than ten-fold.

As I noted above, it’s easy to step back from the markets while developed markets muddle along and deal with piles of debt; for long term investors, now is the time to buy great businesses and to profit on the short-term blindness of the herd.

About the author:

The Science of Hitting
I'm a value investor with a long term focus.

I think Charlie Munger has the right idea: "Patience followed by pretty aggressive conduct."

I run a fairly concentrated portfolio, with a handful of positions accounting for the majority of the total. From the perspective of a businessman, I believe this is sufficient diversification.

Rating: 4.1/5 (18 votes)

Comments

Praveen Chawla
Praveen Chawla premium member - 4 years ago
Given that companies can borrow money cheaply in the market - it makes sense to borrow and buy their shares in the market. This would be one of the best ways of returning money to the shareholders.
The Science of Hitting
The Science of Hitting - 4 years ago    Report SPAM
Pravchaw,

Agreed - like Tilson said, Microsoft should be doing this; they are not acting in shareholders' best interests by twaddling their thumbs...
Cornelius Chan
Cornelius Chan - 4 years ago    Report SPAM
Your article is fairly written, although there happen to be plenty of excellent companies paying in excess of 5% yield as compared to PEP, PG, and JNJ. Also, from what I understand stocks paid much higher dividends earlier in the last century although I don't know what treasuries yielded.

The Science of Hitting
The Science of Hitting - 4 years ago    Report SPAM
C.W.R,

Care to list some of those companies? What are the long term growth prospects and competitive advantages/pricing power like for them?
Cornelius Chan
Cornelius Chan - 4 years ago    Report SPAM
From my current watch-list of blue chip stocks I have located 21 companies that have a 10 year average dividend yield of 5%+.



Argentina


YPF (NYSE:YPF)

Brazil

Banco Bradesco (NYSE:BBD)

Companhia Energetica Minas Gerais (NYSE:CIG)

Companhia Siderurgica NacionaL (NYSE:SID)

Gerdau (NYSE:GGB)

Tele Norte Leste Participacoes (NYSE:TNE)

Chile

A.F.P Provida (NYSE:PVD)

U.S.A.

AT&T Inc. (NYSE:T)

CenturyLink, Inc. (NYSE:CTL)

Verizon Communications Inc. (NYSE:VZ)

New Zealand

Telecom Corp of New Zealand (NYSE:NZT)

Thailand

Advanced Info Service (OTC:AVIFY)

Finland

Metso (OTC:MXCYY)

France

France Telecom (NYSE:FTE)

Groupe Danone (OTC:DANOY)

Portugal

Portugal Telecom (NYSE:PT)

South Africa

Barloworld Limited (OTC:BRRAY)

Nedbank Group Ltd. (OTC:NDBKY)

Switzerland

Zurich Financial Services (OTC:ZFSVY)

U.K.

Legal & General Group (OTC:LGGNY)

Tate & Lyle (OTC:TATYY)

With the exception of Portugal Telecom, none of the above stocks are near their respective preset buy prices. Therefore I am in no hurry to purchase shares of these world-class enterprises.

I have to thank you for giving me 3 criteria for my fundamental analysis consideration. Although to be honest I have not yet had the time to perform fundamental analysis on these companies.

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