In the last piece, I explained that I am using one of the value-seeking strategies found in my book Taking Charge With Value Investing (McGraw-Hill, 2013), which is to seek value in stocks that trade with valuations that are less than the broader market, but with greater growth. Hence if the S&P 500 is trading at 19.23 times earnings and at 1.52 times sales with (0.51%) growth in Q1, then a company that is cheaper with positive growth might indicate upside relative to the S&P 500.
| Company | Ticker | P/E Ratio | Price/Sales | Last Quarter Growth Rate | Forward Yield |
|---|---|---|---|---|---|
| Marsh & McLennan Companies, Inc. (NYSE:MMC) | 18.36 | 1.87 | 2.50% | 2.45% | |
| ACE Limited (NYSE:ACE) | 11.71 | 1.74 | 2.60% | 2.20% | |
| Northrop Grumman Corporation (NYSE:NOC) | 10.43 | 0.74 | (1.50%) | 3.09% | |
| Macy’s, Inc. (NYSE:M) | 14.38 | 0.66 | 4.00% | 2.11% | |
| NiSource Inc. (NYSE:NI) | 18.81 | 1.78 | 8% | 3.48% |
*After dividend hike last week
Marsh & McLennan Companies, Inc. (NYSE:MMC) is a very large $23 billion global professional services firm providing advice and solutions in the areas of risk, strategy and human capital. In the last year it has seen gains of 29.91% and is currently trading at new 52-week highs after increasing its quarterly dividend by 9% last week. While the company does not trade at a large discount to the market (fundamentals/valuation) it does have a significantly greater level of growth (2.50% compared to a loss of 0.51%). Thus I say that it might be a good addition to your portfolio.
ACE Limited (NYSE:ACE) is a large $31 billion global insurance and reinsurance organization, serving the needs of customers in more than 170 countries. Not only is it much cheaper than the S&P 500 with greater growth, but also has a history of increasing its payout to shareholders. In the last five years alone the company has almost doubled its dividend, thus making it a shareholder friendly company with institutional ownership of 93%. In my opinion, these are all reasons to consider adding ACE Limited (NYSE:ACE) to your portfolio.
Northrop Grumman Corporation (NYSE:NOC) is also a very large $20 billion secular company that provides products, services, and integrated solutions in aerospace, electronics, information and services to its global customers. In the last five years it has increased its dividend 50% and is also very aggressive with buying back shares (plans to reduce outstanding shares by 25% by 2015). When you look at its valuation and its dividend it looks like a definite buy, yet its slower than market growth is a bit concerning. In my opinion, this one area of concern is overshadowed by all of its other valuation and dividend related positives.
The large retailer Macy’s, Inc. (NYSE:M), surprised just about everyone when it decided to increase its dividend by 25%. The company continues to grow at a rate that exceeds the market and is obviously priced cheap. Over the last year the one complaint has been its conservative return to shareholders, but with a 25% increase it is very possible that Macy’s will see its valuation appreciate in a more deserving manner during the immediate future.
NiSource Inc. (NYSE:NI). (NiSource) is an energy holding company whose subsidiaries provide natural gas, electricity and other products and services to approximately 3.8 million customers. The company trades at a valuation that is roughly equal to the S&P 500 relative to fundamentals, and increased its dividend just 4%. However, with 8% growth and a dividend of 3.48% the stock looks to be highly attractive. Thus I believe that it is a good under-the-radar company worth exploring further.
Conclusion
Currently, the S&P 500 is paying out a yield of 2.03%, therefore it is attractive when you see a company that is trading cheaper, with better growth, and that also pays a greater yield. The companies in this article exhibit this level of appeal, thus I believe that each is worth your due diligence. Because although none will return 100% annual gains, each has a great opportunity to outperform the market over a longer period of time due to being cheap with strong growth. The dividend serves as a bonus, but can return substantial amounts of earnings during the course of a long-term investment.
The article 5 Stocks That Are Better Investment Alternatives to the S&P 500 originally appeared on Fool.com and is written by Brian Nichols.
Brian Nichols has no position in any stocks mentioned. The Motley Fool owns shares of Northrop Grumman. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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