Investors everywhere are wondering if now is the time to sell their stocks. With stocks at all-time highs who can blame them? It seems that everything has doubled or tripled in price, since the 2009 lows, and the market is now much higher than it was before the crash of 2008.
But what about the stocks that missed the bull run?
There’s a select group of stocks that have actually missed the rally, and can still be purchased at bargain prices today. Believe it or not, some of these businesses are even performing better than they did in 2007.
It’s not too good to be true. Here are the best stocks that the rally forgot.
Finding value, in the rubble of dot-com mania
In 2000, IP-networking giant Cisco Systems, Inc. (NASDAQ:CSCO) and tech glass maker (LCDs, mobile, etc.) Corning Incorporated (NYSE:GLW) were on fire. These companies share a special kindred, as both led the market during the tech boom. In 2000 Cisco’s shares topped a whopping $70 per share, and Corning topped $100 at one point. But since the tech bubble, these stocks have been perpetually undervalued and neither has touched their 2007 levels (around $30 each) since the recession started.
And while both of these stocks have lagged the market recently, they both appear poised to turn the corner.
1. Both Cisco Systems, Inc. (NASDAQ:CSCO) and Corning Incorporated (NYSE:GLW) been consistently profitable. Cisco, which holds dominant market share in its industry, has grown earnings on a steady march upward. Corning is a cyclical player, which has had some peaks and valleys based on demand. But they both have been steady generators of cash.
2. They pay healthy, safe, dividends. Both companies have yields over 2.5%, very high for tech companies, and low pay-out ratios (well below 50%). With low pay-outs and strong cash positions, these dividends should keep growing. Corning Incorporated (NYSE:GLW), for instance, has grown its dividend 26% over the past five years.
3. Both are rallying off of strong quarterly results, and their CEOs have made bullish statements on their near-term future.
These companies aren’t sexy, but it’s not like they’ve had poor results the past few years. They’ve both had tremendous annual dividend growth and, at least single-digit revenue growth over the past five years. Cisco Systems, Inc. (NASDAQ:CSCO)has actually grown earnings since 2008 as well, straight through some rough years, albeit slowly.
But despite that strong performance, it’s the comments by Cisco’s John Chambers and Corning Incorporated (NYSE:GLW)’s executive team that are most bullish. Corning’s CEO stated that their market had likely bottomed, a huge bullish signal for a cyclical play, and Cisco Systems, Inc. (NASDAQ:CSCO)’s team has been positive on the overall tech sector and the broader U.S. economy.
It’s not surprising, given how much these companies have in common, that they both share the same P/E ratio — 13. That’s below the market’s historical average, despite the fact that they’re both trending higher.
The rally from 2009’s lows forgot these two stocks, but it seems like the market has finally decided that their “arrows” are pointing up. With their high dividends and growth prospects, they’re compelling right now.
Value that you can bank on
The “Great Recession” was triggered by a financial crisis, so it’s not surprising that banks have lagged the overall markets returns. It’s also not surprising that the Financial Select Sector SPDR (ETF) (NYSEARCA:XLF) is still really cheap. The fund still trades below $20 a share, well below the 2007 highs near $40 and hasn’t moved much during the market’s recovery. Some of its largest holdings (Bank of America Corp (NYSE:BAC), American International Group Inc (NYSE:AIG) and Citigroup Inc. (NYSE:C)) trade between 6 and 20 times lower than they did pre-recession, and also haven’t moved much in the recovery.
Up until recently, they’ve traded right were they should.
The Great Recession created great values. Nobody wanted to try to value these banks assets when there were so many other options. But those great values have become fewer and fewer and, like it or not, sooner or later this rally will have to include banks.
Citigroup Inc. (NYSE:C), Bank of America Corp (NYSE:BAC), and American International Group Inc (NYSE:AIG) are trading at steep discounts despite signs that their businesses are becoming less risky. Sure there is risk, but if you purchase them through the XLF fund you will diversify for some safety. If you buy the Financial Select Sector SPDR (ETF) (NYSEARCA:XLF) you get the deep value upside of AIG and Citi, while also owning safer names like Berkshire Hathaway Inc. (NYSE:BRK.A).
If the XLF were a person, it’d be both an aspiring movie star and an accountant. It would have both unlimited earning potential and stability. I don’t think we should try to undervalue any individual banks assets, that’s too hard. They’re just too complicated. But the banks overall are, eventually, going higher. Buying the banks individually is still risky, but buying them in a basket makes sense right now.
There’s very few values today — these banks are looking less risky and have a lot of room to run. I like the XLF as a low-risk and high-reward play from here.
A richly valued market is a value investors playground
The market may be at multi-year highs, but it’s not too late to buy. Cisco Systems, Inc. (NASDAQ:CSCO), Corning Incorporated (NYSE:GLW), and the XLF Fund are investments that the bull market forgot.
With their dividends, low prices, and tremendous upside they provide the kind of growth prospects that we all need right now. Safe ones.
Adem Tahiri has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Corning. The Motley Fool owns shares of Corning.
The article 3 Investments That the Bull Market Forgot originally appeared on Fool.com.
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