Buy These 6 No-Brainer Blue-Chip Bargains Before This Bear Market Ends

seekingalpha2022-04-29

Madmaxer/iStock via Getty Images It's been a wild year for stocks so far. Ycharts While the S&P (SPY) is down just 12% from its highs, the Nasdaq has hit -22% and fallen into a bear market. Daily Shot...

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Ycharts While the S&P (SPY) is down just 12% from its highs, the Nasdaq has hit -22% and fallen into a bear market. Daily Shot...</p>\n\n<a href=\"https://seekingalpha.com/article/4504985-buy-no-brainer-blue-chip-bargains-before-bear-market-ends\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":null,"symbol_name":null,"start_time":0,"source_url":"https://seekingalpha.com/article/4504985-buy-no-brainer-blue-chip-bargains-before-bear-market-ends","article_id":"2231623453","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2231623453","pubTimestamp":1651246500,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Madmaxer/iStock via Getty Images It's been a wild year for stocks so far. 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And of course, it's always and forever a market of stocks, not a stock market. If You Feel Bad About Your Portfolio Remember It Could Be Worse Charlie Bilello And TDOC just missed on earnings and got cut in half! Ycharts And TDOC still trades at 15X FORWARD sales. Needless to say, the fastest Fed hiking cycle in 40 years is not a good time to be overweight speculative and non-profitable tech. Why Stocks Are Down 9% In April And 6 Amazing Dividend Aristocrat Bargains This article explains why stocks are crashing, but today I want to help potentially answer the question that many growth investors are desperate to know. When might this bear market finally end? When This Bear Market Might End Let me preface this with an important quote from Peter Lynch. \"Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested.\" - Peter Lynch I'm providing this for CONTEXT, not market timing purposes. 98% Of Market Timers Fail The True Cost Of Market Timing (JPMorgan Asset Management ) According to JPMorgan and Fidelity, 98% of market timers fail to make money over time. 100% of index fund long-term buy and hold investors make money over time \"Trying to time the market will churn your portfolio to death.\" - Joshua Brown, Ritholtz Wealth Management But to address the issue of when this bear market MIGHT end we can consider three things.  technical indicators (what traders and computer algos use to determine when to buy and sell) blue-chip economist forecasting models fundamentals  Nasdaq Has Strong Support At 13,000, 12,450 Trading View Trading View       Support Level 1 13,000   Support Level 2 12,450   Distance From Support Level 1 2.88%   Distance From Support Level 2 7.0%   Total Market Correction To Support Level 1 22.5%   Total Market Correction To Support Level 2 25.7%   Currently Below All-Time High 20.16%   (Source: DK S&P 500 Valuation & Total Return Tool) The Nasdaq held strong support at 22.5% of its highs, just as many computer algos were programmed to make happen. support levels have nothing to do with fundamentals but do affect what traders do If the Nasdaq breaks through this support level, then the next one is at 12,450, at about -25.7% from record highs. -25% is a potentially prudent place for a limit if you want to buy QQQ for your portfolio What about the S&P 500? S&P 500 Has Strong Support At 4,160, Modest At 3,410 Trading View Trading View       Support Level 1 4,160   Support Level 2 3,410   Distance From Support Level 1 2.80%   Distance From Support Level 2 20.3%   Total Market Correction To Support Level 1 13.7%   Total Market Correction To Support Level 2 29.2%   (Source: DK S&P 500 Valuation & Total Return Tool) The S&P also just held su[port and is on the verge of potentially rallying a bit more. If support fails here then the next one isn't for a long while, potentially a 29% bear market bottom. So that's what the technicals say (or at least some of the major support levels). What about timing? Can technical analysis offer any insight here? Trade Station Quadruple witching is when four kinds of options expire. options are LEVERAGED derivatives whose option expiration can increase the volatility of the market (usually to the downside) The day of quad witching expiration, or the Monday after, has sometimes (but not always) been the bottom of major corrections and bear markets.  March 24th, 2018 (20% correction bottom) - Monday after the quad witching March 23rd, 2020 (Pandemic Low) - Monday after the quad witching January 17th, 2022 (Monday after regular option expiration) - Nasdaq goes from -4% to +1% in four hours  Thus if I had to make an educated guess about when the bear market MIGHT bottom I'd say Friday, June 17th, or Monday, June 20th is a reasonable time frame. And it's one that Morgan Stanley and JPMorgan agree with.  JPMorgan notes that the market usually bottoms within 1 to 3 months of the 1st rate hike April 17th to June 17th (Quad witching)    \"The S&P 500 is set to join the bear market within weeks, as it faces a sharp pullback amid fears of aggressive Federal Reserve policy and soaring inflation, according to Morgan Stanley's top US equity strategist... Last week's \"fairly ominous\" performance in both defensive stocks and cyclicals, like energy and materials, suggests investors are aware an economic slowdown is closing in, Mike Wilson told CNBC Monday. \"And that tells me we're going into this final phase, which the good news. The silver lining… is that maybe we can finally complete this bear market over the next month or so,\" he said. Wilson added that a 20% pullback for the S&P 500 from its January high of 4,800 would \"complete\" the ongoing bear market... A fall of that size would take the S&P 500 to a level of 3,900, around 9% lower than Tuesday's level of 4,296... The reason Wilson, who has a year-end target of 4,400 for the S&P 500, is bearish on the market in the near term is that he believes a slowdown in growth will determine how stocks trade.\" - Business Insider (emphasis added)  Morgan Stanley is rather adamant that the S&P is going to fall 20% from its peak.  just like 2011 just like 2018  And potentially bottoming within the next month (within the time frame JPMorgan expects). Both of those years saw growth scares and just like in 2011 and 2018 Morgan Stanley thinks the market bottoms right at this bear market point. 2019 was a 31% year for the S&P And Citi agrees with Morgan and JPMorgan. \"According to analyst Michael Rollins, the fallout of a recession would be \"felt mostly\" in the first half of 2023, could hit earnings by 10%, and bring the S&P 500 down to 3,650, with the response from investors to be earlier \"on both the way in and out,\" as with previous recessions.\" - Seeking Alpha Citi's economists estimate that, IF we got a recession in 2023, earnings will fall about 33% less than the historical average recession. They also expect a peak decline of 24%, similar to the 1991 Gulf war recession (-21%). Ben Carlson Non-recessionary bear markets tend to bottom around -20%. And guess what else justifies a 20% bear market bottom in the S&P 500 (and a similar decline in the Nasdaq)? Valuations Justify A 20% Bear Market Bottom            Year EPS Consensus YOY Growth Forward PE Blended PE Overvaluation (Forward PE) Overvaluation (Blended PE)   2021 $206.11 50.16% 20.7 21.3 20% 21%   2022 $227.48 10.37% 18.8 19.8 10% 12%   2023 $249.78 9.80% 17.2 18.0 0% 2%   2024 $275.96 10.48% 15.5 16.3 -10% -7%   12-Month forward EPS 12-Month Forward PE Historical Overvaluation PEG 25-Year Average PEG S&P 500 Dividend Yield 25-Year Average Dividend Yield   $234.04 18.359 8.96% 2.16 3.62 1.47% 2.01%   (Source: DK S&P 500 Valuation & Total Return Tool) The S&P is historically 9% overvalued compared to its 10, 25, and 45-year average forward PE. Do you know what value gets it right back to historical fair value?  3,944 right near where Morgan Stanley thinks the market will bottom by the end of May 8% below where we are today  Historical Cash-Adjusted Valuations On S&P, Nasdaq, And The Dow           S&P 500   Nasdaq   Dow Jones Industrial Average     Year EV/EBITDA (Net Cash -Adjusted Earnings) Year EV/EBITDA (Net Cash -Adjusted Earnings) Year EV/EBITDA (Net Cash -Adjusted Earnings)   2008 5.83 2008 7.16 2008 5.97   2009 8.81 2009 10.73 2009 8.82   2010 8.59 2010 10.45 2010 8.23   2011 7.96 2011 9.1 2011 7.53   2012 8.37 2012 8.82 2012 7.6   2013 9.82 2013 11.45 2013 9.43   2014 10.47 2014 11.96 2014 9.98   2015 10.21 2015 10.63 2015 9.91   2016 11.91 2016 12.56 2016 13.39   2017 12.42 2017 14.29 2017 12.8   2018 11.88 2018 13.01 2018 11.93   2019 12.52 2019 14.38 2019 12.91   2020 17.11 2020 20.16 2020 18.25   2021 14.91 2021 17.36 2021 14.62   2022 12.69 2022 14.59 2022 12.91   Average 10.90 Average 12.44 Average 10.95   Median 11.24 Median 12.80 Median 11.28   Current 12.69 Current 14.59 Current 12.91   Historically Overvalued 12.92% Historically Overvalued 14.02% Historically Overvalued 14.41%   Current Value   Current Value   Current Value     4284   12855   33897     Historical Fair Value Price   Historical Fair Value Price   Historical Fair Value Price     2022 Consensus EV/EBITDA Per Share   2022 Consensus EV/EBITDA Per Share   2022 Consensus EV/EBITDA Per Share     $337.59   $881.08   $2,625.64     2022 EV/EBITDA Fair Value   2022 EV/EBITDA Fair Value   2022 EV/EBITDA Fair Value     3,793.82   11,273.95   29,628.06     Record High   Record High   Record High     4818.62   16,764.86   36,799.65     Distance Below Record High At Historical Fair Value   Distance Below Record High At Historical Fair Value   Distance Below Record High At Historical Fair Value     21.27%    32.75% (10% below current levels)   19.49%     (Source: DK S&P 500 Valuation & Total Return Tool) If each benchmark returned to its modern-era EV/EBITDA-based fair value, then the market could be expected to bottom around 10% lower. within 3% of Morgan Stanley's estimate So to summarize:  technical support levels Citi, Morgan Stanley, and JPMorgan fundamentals and valuations market history all point to the same POTENTIAL end to this bear market about -20% on the S&P and around -30% on the Nasdaq within the next month or two  So why am I not recommending you wait for the market to hit exactly -20% before putting all your money to work? Because finance is a STATISTICAL and PROBABILISTIC science. There are no certainties, only probabilities. It's better to be approximately right, than precisely wrong.\" - Warren Buffett Buying a great company, like the one or all of the six I'm presenting today, at a good to great price, is all that you need to retire in safety and splendor over the long-term.  don't miss out on potentially thousands of % gains trying to pick up another 10% lower price in 10+ years you won't remember how close to the bottom you bought it won't matter  Or to put it another way, paraphrasing Casablanca: If the market leaves the ground and you haven't bought some blue-chip bargains, you'll regret it. Maybe not today. Maybe not tomorrow, but soon and for the rest of your life. 6 Blue-Chip Bargains To Buy Before The Bear Market Ends DK Zen Research Terminal   Magellan Midstream Partners (MMP) - uses a K1 tax form  Legal & General (OTCPK:LGGNY)  British American Tobacco (BTI)  Taiwan Semiconductor (TSM)  Autodesk (ADSK)  Amazon (AMZN)  I've linked to articles providing detailed coverage of each company's investment thesis and risk profile. Why these companies?  6 companies from three countries on three continents in five sectors  And just take a look at their quality. World-Class Fundamentals You Can Trust In Any Economy DK Zen Research Terminal For context, the average aristocrat has  87% quality 89% safety score 84% dependability 67% LT risk-management percentile  These are companies superior in quality, safety, and dependability to the aristocrats. They are Ultra SWANs, as close to perfect quality companies as exist on Wall Street. And this 4.2% yield? It's one of the safest on earth. How safe?         Rating Dividend Kings Safety Score (161 Point Safety Model) Approximate Dividend Cut Risk (Average Recession) Approximate Dividend Cut Risk In Pandemic Level Recession   1 - unsafe 0% to 20% over 4% 16+%   2- below average 21% to 40% over 2% 8% to 16%   3 - average 41% to 60% 2% 4% to 8%   4 - safe 61% to 80% 1% 2% to 4%   5- very safe 81% to 100% 0.5% 1% to 2%   6 Blue-Chip Bargains 91% 0.5% 1.50%   Risk Rating Low-Risk (76th industry percentile risk-management consensus) A- Stable outlook credit rating 3.2% 30-year bankruptcy risk 20% OR LESS Max Risk Cap Recommendation (Each)   (Source: DK Research Terminal) The average dividend cut risk in an average historical recession is about 1 in 200 and the risk of a cut in a severe recession is about 1 in 67. DK Zen Research Terminal S&P estimates the average risk of bankruptcy is 3.2% for each of these companies, an A- stable credit rating. Six rating agencies estimate their average long-term risk-management in the top 24% of industry peers.   Classification Average Consensus LT Risk-Management Industry Percentile Risk-Management Rating   S&P Global (SPGI) #1 Risk Management In The Master List 94 Exceptional   Strong ESG Stocks 78 Good - Bordering On Very Good   6 Blue-Chip Bargains 76 Good   Foreign Dividend Stocks 75 Good   Ultra SWANs 71 Good   Low Volatility Stocks 68 Above-Average   Dividend Aristocrats 67 Above-Average   Dividend Kings 63 Above-Average   Master List average 62 Above-Average   Hyper-Growth stocks 61 Above-Average   Monthly Dividend Stocks 60 Above-Average   Dividend Champions 57 Average   (Source: DK Research Terminal) And it's not just the quality of these blue-chips that's exceptional, their valuation is too. Wonderful Companies At Wonderful Prices DK Zen Research Terminal These companies are 29% historically undervalued, trading at an average PE of 14.6X.  1.26 PEG growth at a reasonable price  Analysts expect 45% total returns in the next year alone and 47% total returns are justified by their fundamentals. And just take a look at their long-term return fundamentals. Long-Term Return Fundamentals Rich Retirement Dreams Are Built On DK Zen Research Terminal The Nasdaq yields 0.8% and analysts expect 14.3% long-term earnings growth. The S&P yields 1.5% and analysts expect 8.5% long-term earnings growth. The dividend aristocrats yield 2.2% and analysts expect 8.9% earnings growth. Junk bonds yield 4.4% and there is zero growth potential. These no-brainer blue-chip bargains offer a 4.2% very safe yield today, and 15% long-term growth potential. As well as a 19.3% long-term return potential. Buffett-like return potential form blue-chip bargains hiding in plain sight What does that potentially mean for your retirement portfolio? Inflation-Adjusted Consensus Return Potential: $1,000 Initial Investment          Time Frame (Years) 7.4% CAGR Inflation-Adjusted S&P Consensus 8.6% Inflation-Adjusted Aristocrat Consensus 16.8% CAGR Inflation-Adjusted No-Brainer Blue-Chip Bargain Consensus Difference Between Inflation Adjusted No-Brainer Blue-Chip Bargain And S&P Consensus   5 $1,429.63 $1,511.29 $2,174.70 $745.07   10 $2,043.84 $2,284.01 $4,729.34 $2,685.50   15 $2,921.94 $3,451.81 $10,284.91 $7,362.97   20 $4,177.29 $5,216.70 $22,366.63 $18,189.34   25 $5,971.97 $7,883.98 $48,640.79 $42,668.81   30 $8,537.71 $11,915.01 $105,779.31 $97,241.60   (Source: DK Research Terminal, FactSet)        Time Frame (Years) Ratio Aristocrats/S&P Ratio Inflation-Adjusted Aristocrat Bargain Consensus And S&P Consensus   5 1.06 1.52   10 1.12 2.31   15 1.18 3.52   20 1.25 5.35   25 1.32 8.14   30 1.40 12.39   (Source: DK Research Terminal, FactSet) These blue-chips have the potential to deliver life-changing wealth and beat the market by 12X over the next 30 years. Even over just the next 10 years, analysts think they could beat the market by 3.5X. Ok, this sounds amazing, but what evidence is there that these Ultra SWANs can actually deliver close to 19% returns over time. Historical Returns Since 2002 (Annual Rebalancing) \"The future doesn't repeat, but it often rhymes.\" - Mark Twain Past performance is no guarantee of future results, but studies show that blue-chips with relatively stable fundamentals over time offer predictable returns based on yield, growth, and valuation mean reversion. Bank of AmericaSo let's take a look at how these Ultra SWAN bargains have performed over the last 20 years when 91% of total returns were the result of fundamentals, not luck.  21.7% CAGR total returns vs Nasdaq's 11.7% and S&P's 8.6% 2X better negative volatility-adjusted total returns than the Nasdaq and S&P  Over the last 20 years adjusted for inflation:  S&P up 3.3X adjusted Nasdaq up 5.8X These Ultra SWANs up 33.3X  And don't forget about the dividends.           Portfolio 2008 Income Per $1,000 Investment 2021 Income Per $1,000 Investment Annual Income Growth Starting Yield 2021 Yield On Cost   No-Brainer Blue-Chips $27 $2,271 26.27% 2.7% 227.1%   (Source: Portfolio Visualizer Premium) These Ultra SWANs delivered an incredible 26% income growth thanks to rebalancing into undervalued high-yield blue-chips and reinvesting dividends. That turned a 2.7% yield into a 227% yield on cost. What about the future?         Analyst Consensus Income Growth Forecast Risk-Adjusted Expected Income Growth Risk And Tax-Adjusted Expected Income Growth Risk, Inflation, And Tax Adjusted Income Growth Consensus   23.3% 16.3% 13.9% 11.4%   (Source: DK Research Terminal, FactSet) Analysts expect 23% long-term income growth which adjusted for the risk of companies not growing as expected, inflation, and taxes is 11.4%. Now compare that to what they expect from the S&P 500.   Time Frame S&P Inflation-Adjusted Dividend Growth S&P Inflation-Adjusted Earnings Growth   1871-2021 1.6% 2.1%   1945-2021 2.4% 3.5%   1981-2021 (Modern Falling Rate Era) 2.8% 3.8%   2008-2021 (Modern Low Rate Era) 3.5% 6.2%   FactSet Future Consensus 2.0% 5.2%   (Sources: S&P, FactSet, Multipl.com) What about a 60/40 retirement portfolio? 0.5% consensus inflation, risk, and tax-adjusted income growth. In other words, these 6 blue-chip bargains offer  almost 3X the market's yield (and a much safer yield at that) nearly 6X its long-term inflation-adjusted consensus income growth potential 12X better long-term inflation-adjusted income growth than a 60/40 retirement portfolio  Bottom Line: Embrace This Volatility And Buy The Blue-Chip Bargains That Can Make You Rich This bear market might seem scary, but it's your best friend if you know how to manage risk correction. \"Volatility isn't risk, it's the source of future returns.\" - Joshua Brown, CEO of Ritholtz Wealth Management I can't tell you what will happen with the economy this year, or next year, no one can. No one knows how many times the Fed will hike in the next 18 months, and for sure no one knows what Putin is going to do in Ukraine. How long will China continue to shut down over COVID? Your guess is as good as mine. But here's what I can tell you about AMZN, TSM, ADSK, BTI, MMP, and LGGNY:  4.2% very safe yield A- average credit rating 29% undervalued 15.1% long-term growth consensus 19.3% long-term return potential (vs 21.7% for the last 20 years) analyst consensus 46% total return in the next year (47% justified)  To paraphrase Casablanca: If the market leaves the ground and you haven't bought some blue-chip bargains, you'll regret it. Maybe not today. Maybe not tomorrow, but soon and for the rest of your life. This bear market might last another year, or it might be over in a month. Don't look a gift horse in the mouth. Don't get too cute. 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