Believe it or not, the current sentiment survey numbers from the American Association of Individual Investors (AAII) are worse than those following the crash of ‘87, the terrorist attacks of 9/11 and the declaration of the pandemic two years ago, recalls John Buckingham, editor of The Prudent Speculator.
In fact, they trail only the figures leading up to the first Gulf War in 1990, the aftermath of the Collapse of Lehman Brothers in 2008 and the Bottom of the Great Financial Crisis in March 2009.
Certainly, we do not want to make light of the worries today about the war in Ukraine, sky-high inflation, rising interest rates and a much-less accommodative Federal Reserve, but there is a statistical reason why AAII Sentiment is viewed as a terrific contra-indicator — subsequent equity market gains, on average, following the nine prior extremely Bearish readings were sensational.
That is not to say that stocks will quickly rebound as those who added to their equity exposure in October 2008 endured much bigger short-term losses. However, long-term-oriented investors who remembered that the secret to success with stocks is not to get scared out of them were very happy with what transpired over the ensuing one, three, five, ten and 14+ years.
Volatility is always part of the investment process, so nothing witnessed this year is unusual, and we can’t forget the outsized equity returns in 2021, but we realize that there are no prizes for the recent red ink in our portfolios.
However, we see no reason to alter our long-term enthusiasm, especially as our portfolio sports respective trailing and next 12-month P/E ratios of 13 and 12, compared to 22 and 19 for the S&P, while the dividend yield of 2.4% is generous versus1.4% for the S&P.
We also like that the historical evidence shows that Value stocks have enjoyed double-digit returns, on average, when inflation is elevated or when the Fed is tightening or when government bond yields are rising. True, recession risks are higher, but even such an event, historically, has been no reason to sell value stocks.
This month, we will boost our ownership position in General Motors (GM) and also hike our holdings in Comcast (CMCSA) and Bristol-Myers (BMY).
Bristol-Myers Squibb is a global pharmaceutical company focused on discovering, developing, licensing and marketing drugs for cardiovascular, virology, oncology, affective disorders, immunology, metabolic and other indications.
BMY earned $1.96 per share in Q1, a 13% improvement year-over-year, on 5% revenue growth, and announced FDA approval of respective cancer and heart failure drugs Opdualag and Camzyos.
These approvals, along with new approvals for current drug Opdivo, are solid strides to not just offset losses from Revlimid starting this year, but to continue to grow the top line. High-quality BMY trades for 10 times next 12-month EPS, with a dividend yield of 2.9%.
Comcast is a global media and technology company with two primary businesses. Comcast Cable is one of the nation’s largest video, high-speed internet and phone providers to residential customers under the XFINITY brand and also provides these services to businesses.
NBCUniversal operates news, entertainment and sports cable networks, the NBC and Telemundo broadcast networks, television production operations, television station groups, Universal Pictures and Universal Parks and Resorts.
CMCSA reported a loss of more than 512,000 cable-TV subscribers (vs. 440,000 est.) amid an otherwise decent Q1. Voice services lost 282,000 subscribers, double the analyst consensus, but theme kark revenue rebounded. In the same week that streaming giant Netflix reported the first subscriber losses in ten years, Comcast’s video subscriber losses were poorly received.
While investors headed for the exits at Netflix (NFLX) and other streamers, we are not convinced that a single datapoint (or quarter in this instance) makes a trend.
Yes, subscriber additions are better than defections, but a reckoning over content costs seems hardly a bad thing for long-term earnings health. CMCSA continues to be active with its share buyback program and offers a just-hiked dividend yield near 2.7%.
Having soared on 40% profit growth in 2021, shares of General Motors have cooled by over a third in the first four months of 2022. The giant automaker earned $2.09 per share in Q1, just a 7% reduction year-over-year on lower volume, given the ongoing parts shortages, and elevated commodity costs.
Nevertheless, GM continues to expect between $6.50 and $7.50 of adjusted EPS in 2022, a slight upward revision (at the midpoint) from a quarter ago.
We continue to find the company’s move away from sedans and towards trucks and SUVs as an important catalyst that helps supply huge amounts of cash flow needed to execute its “Transformation Roadmap,” which includes launching more than 30 EVs in the very near term.
And GM is making tremendous progress on that front, expecting to produce 400,000 EVs in North America through 2023, yet the shares change hands at less than 6 times expected profits in each of the next few years.
