To The Moon

🎁Questions For Tigers：

• With recession expectations, is this the right time to pile into boring value stocks?

• Will value stocks continue to perform well if the stock market starts to rebound in the second half of 2023?

• What Boring stocks would be shown on your target watch-list？

1. “Boring stocks ”is Better During Volatile Market

The 2022 market crash and the broader retreat of growth stocks has established one thing: boring is better when it comes to stock investing during volatile times.

Earlier this year, Bloomberg quoted Goldman Sachs analyst Peter Oppenheimer, who said that value stocks are expected to outperform growth stocks in 2023 as “big cap technology sees further margin pressure, commodity prices rise , real interest rates remain higher and even geopolitical uncertainty” .

Morgan Stanley’s famous bear Mike Wilson In January said that he was expecting a “nasty earnings recession and the companies that can deliver on cost efficiency will be the ones that can continue to perform.”

Which companies can deliver on cost efficiency? You guessed it right. Boring companies that make money.

Boring companies with prudent business models, realistic valuations and years of dividend growth will be our focus in this article today because these are the companies that are expected to deliver well despite the financial crunch and recession which could last for months or years to come.

2. Boring Stocks’s Definition

"Companies that Make Real Things and Do Real Things", Jim Cramer said in a program last year:

“If you took your cue from me and bought common stocks of companies that make real things and do real things that return capital and trade at a reasonable valuation, you’re relatively fine.”

Boring stocks is the companies that make essential items that sell irrespective of the economic cycle are positioned well to weather any economic storm. “The problem is those stocks that go down less … they’re really boring.”

3. 11 Selected Boring Stocks by Hedge Fund That Pay Dividends

Below are top 11 boring companies that pay dividends scanned from Insider Monkey’s database of 943 hedge funds. Source from Yahoo.finance.

• $UnitedHealth(UNH)$ has a relatively low dividend yield but this boring stock also provides share price appreciation opportunities for long-term investors.

  Thanks to its typically strong financial results and increased appreciation for the business’ relative insensitivity to the broader economy. In managed care, no other is bigger, more diversified or better run than $UNH.

  Morgan Stanley recently gave bullish comments on $UNH. The firm, which has an Overweight rating on $UNH and believes the company’s resilient and diversified business will create long-term “double-digit earnings growth.”

• $Lowe's(LOW)$ is one of the ideal boring stocks to have in your portfolio during volatile economic times. Recently, BofA screened for what it called “sleep at night” stocks for investors who are looking for safety during these troubled times. LOW made it to BofA’s high-quality defensive group of stocks.

• $3M(MMM)$ With over six decades of consistent dividend growth, the maker of Scotch tape and Post-It is one of the ideal boring stocks that pay dividends. Hedge funds also love this dividend stock. As of the end of the fourth quarter of 2022, 52 hedge funds tracked by Insider Money had stakes in $MMM, the total value of these hedge funds’ stakes is about $1.6 billion.

• $Air Products & Chemicals(APD)$ upped its dividend in January 2023. This was the 41st consecutive year of $APD has increased its dividend. In January, Goldman Sachs equity strategy team added $APD in its list of stocks that are poised to benefit from the China reopening. 41 hedge funds from Insider Monkey’s proprietary database shows the stakes in APD was $508 million.

• $Clorox(CLX)$ With over four decades of consistent dividend increase, consumer products company $CLX ranks 5th in our list of boring stocks that pay dividends. Investors favored consumer staples stocks like $CLX during recessions as these companies make essential items whose sales largely remain unaffected even during economic downturns.

• $American Water(AWK)$ Utility company $AWK has upped its dividends consistently for 14 years, as of 2022. During the fourth quarter of 2022, $AWK’s GAAP EPS came in at $0.81, beating estimates by $0.01. AWK reaffirmed its long-term EPS and dividend growth targets of 7-9%. For 2023, $AWK expects EPS in the range of $4.72 to $4.82.

• $Digital Realty Trust Inc(DLR)$ is a REIT focused on data centers, colocation and interconnection solutions. $DLR is a solid dividend stock with 18 years of consistent dividend growth.

• $Williams-Sonoma(WSM)$ as a Kitchenware and home furnishings retailer ranks 8th in our list of boring stocks that pay dividends. In March, $WSM increased its quarterly dividend by 15%. Forward dividend yield at the time came in at over 3%. This marked $WSM’s 14(th) consecutive year of dividend increases. Of the 943 hedge funds tracked by Insider Monkey, 29 hedge funds had stakes in $WSM with a total stakes worth $305 million.

• $Xcel Energy(XEL)$ Minnesota-based utility company ranks 9th in our list of boring stocks that pay dividends. In February, $XEL upped its quarterly dividend by 6.7%, this marked the 19(th) consecutive year of dividend increases.

• $Kellogg(K)$ is one of the stocks that remain strong during inflation as the company has the pricing power to transfer the effects of rising inflation to customers. Being a consumer staples company, $K is also highly popular among defensive investors. 26 hedge funds had stakes in $K. Even Bridgewater of Ray Dalio had a $41 million stake in $K.

• $Sonoco(SON)$ As of 2022, the packaging company has increased its dividend for 4 consecutive years. In March, $SON said it expects its adjusted EPS in Q1 to be in the range of $1.30 to $1.40, better than its previous guidance range of $1.15 to $1.25. The total worth of 17 hedgefunds's stakes in SON was $158 million.

4. With recession expectations, will you pile into boring value stocks?

3-Year Performances since pandemic 2020

Currently, the world is betting on the US economy entering a recession.

The Northern Trust report said that since 1970, there have been six technical recessions in the United States. During six technical recessions in the US since 1970, equity market performance ranged from a 30% decline to a slight increase.

However, in the year immediately following these recessions, stock market returns average 22% with value outperforming growth by more than 4% points. In technical recessions coupled with high inflation, value outperformed growth by over 10% points.

Dividend stocks provided a safe haven to investors who were looking for a refuge amid a ruthless economic turmoil.

Earlier 2023, Alec Young, MAPsignal's Chief Investment Strategist, said that dividends account for about 40% of the total stock market returns over the long run.

During volatile periods in the market, a more conservative approach of should be considered--targeting companies with an established track record of success throughout decades of operations.

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