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Here are five sets of securities that determine your portfolio for pandemic recovery



If you really want to call yourself an investor from the controversy, it’s time to take a close look at what hasn’t worked so far this year – value stocks and dividend stocks.

Value growth stocks were weaker (especially Tesla Inc.’s TSLA,
-4.09 percent.
and the names of the hottest technologies) during the economic slowdown caused by the COVID-19 pandemic. As you can see from the list of dominant technology companies below, most sales are growing well, even as the downturn has affected many other companies.

This year’s action has exacerbated a long-term trend of widespread asset and dividend share recoveries, says Charles McMahon, chief investor for active trading strategy at Charles Schwab Corp.

McMahon was promoted to his current position in November. Previously, he was the investment manager at ThomasPartners, which manages the largest of Charles Schwab̵

7;s active investment management strategies, for which he is now responsible. (McMahon joined ThomasPartners when it was founded in 2001. The company was acquired by Schwab in 2012.)

In an interview, McMahon said the gap between stock values ​​and growth values ​​was “broad, historically,” and that “if you tended to slump in value, that’s not a bad time to do so”.

“In the long run, you’ll benefit from holding companies that pay dividends, but in the short term, that didn’t work that way,” he said.

The differences between this year’s growth and value changes are described below, where McMahon also comments on the particularly hot FAANG shares and the high-tech name he currently supports.

Five sets of securities

McMahon discussed five stocks that he believes “show good value,” emphasizing attractive and safe dividends for several of them.

• Raytheon Technologies Corp. RTX shares,
-0.14 percent
fell 30 percent this year. (All returns in this article mean that dividends are reinvested.) “Business is divided between defense, which is stable under long-term contracts, and commercial space, which is not,” McMahon said. The interruption of air travel for many passengers during the pandemic was an obvious problem. But McMahon believes stocks will recover over time and that dividends are safe. The yield is 3.11%, which is nothing to sneeze when 10-year Treasury bonds TMUBMUSD10Y,
0.579%
gives only 0.59%.

• PPG Industries Inc. PPG,
-1.49 percent
manufactures paints and coatings used in a variety of industries. The dividend yield on the shares is 1.96%. This year, it fell 17 percent. Because of the “high economic sensitivity”, especially for car sales and aircraft production, McMahon said. He likes the company because of its “really strong management team and good balance” and believes the stock will “have a lot upside down” for long-term investors who can wait for the economy to recover from a pandemic.

• Coca-Cola Co. KO,
-0.61 percent.
headlines fell 28%, but indicated the worst ended as sales improved in May and June. McMahon said the company’s management was “very committed to paying dividends.” The yield is 3.38%. He also welcomes Coca-Cola’s plan to “get rid of smaller brands.” Stocks fell 11% this year, but McMahon expects a resurgence “when operations resume and people go to restaurants and ball parks again.”

• Home Depot Inc. HD “,
-0.80%
seems to always be in a cute place. When the housing market is strong, it helps the company. When the housing market is weak, people undertake more renovations, which helps the company. McMahon called the business “quite resilient to online competition.” The value of the shares this year increased by 24% and their dividend yield is 2.44%. McMahon expects the “dynamics” of the housing market to continue as city dwellers want to get to know the suburbs and the rich look at seaside summer homes.

• Abbott Laboratories ABT,
-0.13 percent
has the lowest dividend yield among the shares named McMahon: 1.44%. He pointed to the “good growth properties”, especially in the use of the Freestyle Libre glucose monitoring system and the provision of nutritional products. McMahon added that Abbott “has been very good with mergers and acquisitions in the past.”

The trend of overpricing is accelerating

Here are two charts showing the movement in the iShares Russell 1000 Growth ETF IWF price and forward price-earnings ratio.
-0.97 percent
and the iShares Russell 1000 Value ETF IWD,
-0.32 percent
in the last five years:

FactSet

FactSet

We’ve included charts based on 12-month earnings results, as well as a consensus on estimates for the next 12 months, as current projections are dubious in many sectors – we don’t know how long the U.S. economic recovery will take.

Final P / E assessment of the Russell 1000 Growth Index RLG
-1.03 percent
increased this year and the Russell 1000 Value Index RLV rating
-0.32 percent
was flat. In the preliminary P / E chart, the value group’s P / E rose sharply this year due to a sharp decline in income estimates, but the gap between the values ​​of the indices widened.

McMahon noted the incredible performance of the Tesla TSLA,
-4.09 percent.,
until 2020 July 27 increased by 268%.

“Tesla has become the child of the poster,” he said. “The stock’s results were staggering,” investors said, “despite a long-term business foundation or valuation.”

Asset inflation, largely driven by the Federal Reserve to strengthen the U.S. economy, has also led to the appreciation of the names of the biggest technologies. This year’s S&P 500 IT sector grew 17.5%, compared to 1.4% for the S&P 500 SPX’s total return.
-0.64 percent..

FAANG and Microsoft

FAANG shares (Facebook Inc. FB)
-1.44 percent,
Apple Inc. AAPL
-1.64 percent,
Amazon.com Inc. AMZN “,
-1.79 percent,
Netflix Inc., NFLX,
-1.44 percent
and Google holding company Alphabet Inc.
-1.95 percent
GOOGL,
-1.68 percent
) also ran well. We may add Microsoft Corp. MSFT “,
-0.89 percent.
to that list:

The company

Certainly

Total return – 2020

Quarterly sales growth

Rear P / E

Forward P / E

Facebook Inc. Class A.

FB,
-1.44 percent

13.8 percent.

17.6 percent

32.1

31.1

Apple Inc.

AAPL,
-1.64 percent

29.8 percent.

0.7 percent

29.5

28.2

Amazon.com Inc.

AMZN,
-1.79 percent

65.3 percent.

26.4 percent.

145.9

144.9

Netflix Inc.

NFLX,
-1.44 percent

53.2 percent.

24.9 percent

83.0

65.8

Alphabet C

GOOG,
-1.95 percent

14.4 percent.

13.6 percent

30.7

34.3

Alphabet Inc. Class A.

GOOGL,
-1.68 percent

14.2 percent

13.6 percent

30.7

34.4

Microsoft Corp.

MSFT,
-0.89 percent.

30.0 percent

13.1 percent

35.4

31.6

Source: FactSet

The market capitalization of these six companies is 24% of the total S&P 500 index SPX,
-0.64 percent..
This is a fairly concentrated risk. Of the six, only McMahon currently supports Microsoft.

“Microsoft has a very strong cloud business, and we think their focus on business customers is right,” said McMahon. He also drew attention to the risks of regulatory action against Facebook, Alphabet and Amazon.com due to concerns about anti-competitive practices, dominance in online advertising and consumer privacy.

“Microsoft has moved away from areas with a feather cap,” he said.


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