Are you one of the many investors who has missed some or all of the great run in the equity markets this year?
Well you’re not alone–many retail investors have missed a great deal of the great returns seen over the last couple years. With record highs seen just last week, you may be saying to yourself, isn’t it risky to buy up here? The answer is yes. It’s is always risky buying the market at highs as historically, the moment when the retail investors start pouring back in, “smart money” is selling while calling the top.
So how can the average investor get involved with the market without risking too much capital? In this article I would like to analyze three companies that are respected leaders within their industries, yet trade at low earnings multiples. A great deal of the run so far this year has been a result of multiple expansions, especially within the housing sector. By looking for names with little premium built into the stock price, you are somewhat protected from moves to the downside as multiple contractions are far less painful.
Into the gray
As I’ve talked about briefly in some of my recent healthcare articles, our population here in the United States is growing older in combination with increasing life expectancies. One company in particular, Prudential Financial Inc (NYSE:PRU) is positioned well to benefit from the graying generations.
A number of tailwinds are creating the perfect storm for the older generation. The National Research Council recently put out a report in which it predicts that by 2050, life expectancy will rise by almost 7 years to 84.5 years. Moreover, the report predicted the proportion of citizens over the age of 65 will jump by 80% over the next few decades.
So why does this matter for a financial company? Well, Prudential Financial Inc (NYSE:PRU) generates a substantial proportion of its revenue from its retirement, asset management, and annuity business segments. 44% of the company’s attributed equity comes from two of these segments, annuties and retirement account for 30% and 14% respectively.
At only 9 times forward earnings, Prudential Financial Inc (NYSE:PRU) gives investors exposure to a number of industries I expect to perform well over the coming decades including those previously mentioned in addition to insurance.
Catching a falling knife is risky, but worth consideration
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), an industry-leading producer of copper, gold, and gas has done especially poor this year in the face of a broad market rally. Shares have moved lower by 16% on the back of weak copper prices and fears of significant demand declines out of China.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), which trades in high correlation to the underlying price of copper, trades at a forward, and current, price to earnings multiple just under 10 times.
A number of companies with exposure to China, got a bid last week with higher than some had estimated GDP growth. The country reported 7.5% growth during the second quarter, helped by a 13% increase in retail sales, but hurt by worse than expected industrial output. Should we begin to see the fears of an economic meltdown subside, I would expect to see the price of copper and other industrial metals get a bid, thus helping the underlying price of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX).
For the long term investor, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) offers good exposure to the emerging world for a low valuation.