The 5 Best Investments You Can Make in 2019

The following is an excerpt from The 5 Best Investments You Can Make in 2019

Everyone is looking forward to 2019 if only because 2018 has been so ugly. But investors will have to mentally sturdy themselves: Before we can talk about the best investments to make in 2019, we have to quickly explore what has gone wrong in 2018.

The year started with a bang. The Standard & Poor’s 500-stock index returned nearly 6% that month following an epic 2017 that saw the index pop by 22%. But after that, it got rocky. Stocks stumbled in the first quarter, rallied for most of the second and third quarters, then rolled over and died again in October. It hasn’t gotten better since, and investors have had plenty to digest the whole way.

Much of the massive gain in 2017 was likely powered by investors looking forward to the profit windfall following the corporate tax cuts at the end of last year. But that’s a year in the past. Going forward, we’ll be comparing post-tax-cut profits to post-tax-cut profits as opposed to higher post-cut to lower pre-cut. Meanwhile, stock prices are still priced for perfection. At 2 times sales, the S&P 500’s price-to-sales ratio is sitting near all-time highs, and the cyclically adjusted price-to-earnings ratio, or “CAPE,” of 29.6 is priced at a level consistent with market tops.

Fortunately, the new year provides an opportunity to wipe the slate clean. So what might we expect in the new year? Today, we’ll cover five of the best investments you can make in 2019, come what may in the stock market.

Consider Alternatives

It’s difficult to beat the stock market as a long-term wealth generator. At roughly 7% annualized returns after inflation, the market has historically doubled your inflation-adjusted wealth every 10 years. No other major asset class has come close.

Still, you shouldn’t put all of your money in the stock market.

To start, there is no guarantee that the future will look like the past. The stock market as an investment destination for the masses is a relatively new concept that really only goes back to the 1950s, or perhaps the 1920s if you want to be generous. You can’t credibly say that the market “always” rises with time because, frankly, we’re writing history as we go.

Bonds have a longer track record, but bonds are also priced to deliver very modest returns in the years ahead. Adjusted for inflation, the 3% yield on the 10-year Treasury looks a lot more like a 1% yield.

Investors should consider alternative strategies as a way to diversify while not sacrificing returns.

“Alternative” can mean different things to different investors, but for our purposes here we’re taking it to mean something other than traditional stocks and bonds. Alternatives could include commodities, precious metals and even cryptocurrencies like Bitcoin. But more than exotic assets, an alternative strategy can simply use existing, standard assets in a different way.

“The vast majority of options contracts expire worthless,” explains Mario Randholm, founder of Randholm & Company, a firm specializing in quantitative strategies. “So, a conservative strategy of selling out-of-the-money put and call options and profiting from the natural “theta,” or time decay, of options is a proven long-term strategy. You have to be prudent and have risk management in place, as the strategy can be risky. But if done conservatively, it is a consistent strategy with low correlation to the stock market.”

That’s a more advanced way to skin the cat. But the key is to keep your eyes open for alternatives with stock-like returns that don’t necessarily move with the stock market.

To continue reading the remaining four investments, see The 5 Best Investments You Can Make in 2019

This article first appeared on Sizemore Insights as The 5 Best Investments You Can Make in 2019

Best Stocks for 2019: LyondellBasell Will Take the Crown

The following is an excerpt from Best Stocks for 2019: LyondellBasell Stock Will Take the Crown. LyondellBasell is my selection in InvestorPlace’s Best Stocks for 2019 Contest.

My pick in Best Stocks for 2019 is LyondellBasell (LYB), one of the largest plastics, chemicals and refining companies in the world. It’s also one of the cheapest stocks in the S&P 500, has strong insider buying, and has a fantastic history of taking care of its shareholders via dividend hikes and well-timed share repurchases.

If you’re not familiar with the company, LYB produces everything from food packaging to water pipes and auto parts. Additionally, the company is one of the largest crude oil refiners in the United States and produces gasoline, diesel fuel, jet fuel and assorted lubricants. The company sells its products in more than 100 countries and made the 2018 list of “Most Admired Companies” by Fortune magazine.

Energy stocks have been beaten up of late due to the falling price of crude oil. With global demand looking suspect and suppliers stronger than ever, the price of crude oil is down by about a third since the beginning of October.

But that’s hardly a bad thing for LyondellBasell. Lower prices for crude oil and natural gas liquids means lower cost of feedstock for the chemicals and refining businesses and thus higher profits.

Not that profits have been in short supply. Over the past five years, LyondellBasell stock has averaged a return on equity of nearly 60%. Net margins fluctuate based on the economic cycle but have averaged in the mid-teens since 2015. Over the trailing 12 months, net margins have held steady at 15.01%.

Despite its financial health, it’s hard to find too many large-cap stocks that are as cheap as LYB stock. The company trades at a trailing price-to-earnings ratio of just 6.02 and a forward P/E of just 8.05. Compare that to the S&P 500’s trailing and forward P/E ratios of 21.98 and 15.1, respectively.

To continues reading, see Best Stocks for 2019: LyondellBasell Stock Will Take the Crown.

This article first appeared on Sizemore Insights as Best Stocks for 2019: LyondellBasell Will Take the Crown

What if Santa Doesn’t Come This Year?

The following was originally published on Kiplinger’s as Don’t Wish for a Santa Claus Rally. Prepare Instead.

Perhaps we should all give thanks that the market is closed for Thanksgiving. It’ll give us a chance to recover from quite a beating – and for some, time to wish for a “Santa Claus rally” to rescue stocks.

It’s rough out there. The November-to-April period seasonally has been the best time of the year to be invested. It looked like that might be the case this time around, too. After a devastating October that saw the Standard & Poor’s 500-stock index drop almost 7%, November started strong.

Alas, it didn’t last.

Stocks started sliding again in the second week of November, and by the week of Thanksgiving they had already taken out the October bottom. As of this writing, the S&P 500 was about 2% away from hitting new 52-week lows.

Is a Santa Claus rally still in the cards? December is a historically strong month, after all. The final month of the year has been positive more often than any other, finishing higher 66 out of the past 90 years. And the market indeed is ready for a reprieve in December following two lousy months in a row.

But don’t hang your hat on Santa Claus coming to town.

Why the Grinch Could Steal Christmas

We’ll start with stock valuations, which never seem to matter … right until they do.

Expensive markets can continue to get even more expensive, sometimes for years. Consider that Alan Greenspan first complained about “irrational exuberance” in the markets as early as 1996. It would be well over three years until the market finally rolled over. Yet when the bubble finally burst in the first quarter of 2000, it got ugly. The market was down 15% by year end and proceeded to lose nearly half its value before it finally hit bottom.

There’s no guarantee the market will follow a similar path this time around. But it’s worth noting that when the S&P 500 peaked in late September, it was actually more expensive than at the top of the 2000 tech bubble, at least as measured by the price-to-sales ratio.

To continue reading, please see Don’t Wish for a Santa Claus Rally. Prepare Instead.

This article first appeared on Sizemore Insights as What if Santa Doesn’t Come This Year?

Growth Stocks That Pay You Cash Too

The following first appeared on Kiplinger’s as 7 Growth Stocks That Will Pay You Cash Too

Investors seeking out growth stocks often discard dividends as unimportant, but they really shouldn’t. After all, there’s no greater sign of a company’s health than the regular, consistent payment of dividends. When the board of directors approves the payment of the quarterly dividend, it sends the unmistakable message that more cash is expected down the road.

Thus, a focus on dividends can help you improve the quality of your growth portfolio.

“We consider a reliable and growing dividend to be a major sign of a company’s health,” says Chase Robertson, principal of Houston-based RIA Robertson Wealth Management. “Limiting your pool of available stocks to dividend payers immediately improves the quality of the portfolio.”
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Today, we will look at seven solid dividend-paying growth stocks. It’s not unusual for growth stocks to return 20% or more per year when they’re on a good run, so the dividends paid will be a small part of the total return. It’s exceptionally rare for a true growth stock to sport a high dividend yield.

Still, it’s nice getting paid something in cold, hard cash. If anything, the dividend allows you to realize a small portion of your gains along the way without having to sell your shares.

Let’s look at an example. While ubiquitous coffee chain Starbucks (SBUX) isn’t quite the growth monster it was 15 years ago, it’s still expanding like a weed. Revenues were up 11% last quarter and earnings were up 23%.

It sometimes seems like there is quite literally a Starbucks on every street corner, at least in urban and suburban areas. But the company still is finding plenty of fertile ground for new growth. Last year, the company reported it was opening a new store in China literally every 15 hours. Stop and fathom that.

Few investors buy SBUX primarily for its dividend. They buy the stock for its explosive growth and for the power of its brand, which isn’t far behind the McDonald’s (MCD) golden arches, the Coca-Cola (KO) logo or Mickey Mouse in terms of recognition.

Yet Starbucks is no slouch as a dividend payer. It currently yields 2.6%, well above the yield of the S&P 500. And the company has raised its dividend for seven years running.

At some point, Starbucks really will have reached the point of global market saturation. The company won’t be able to open a new location without seriously cannibalizing sales at existing locations. But that day is likely years away. In the meantime, shareholders get to enjoy a market-beating dividend yield.

To continue reading, please see 7 Growth Stocks That Will Pay You Cash Too

This article first appeared on Sizemore Insights as Growth Stocks That Pay You Cash Too

Stocks for the Beginner Investor

The following first appeared on Kiplinger’s as 5 Great Stocks to Buy If You’re New to Investing

The biggest challenge for many new investors is simply knowing where to start.

There’s no clear consensus on how to invest. Value investors will say the best stocks to buy are cheap ones and rattle off plenty of statistics to defend their stance. Growth and momentum investors will counter that investing in dominant growth stocks is the way to go. After all, you’re not too likely to find an all-star like Amazon.com (AMZN) sitting in the bargain bin.

What about dividends? Or share repurchases? Various studies have shown that focusing on these factors can generate solid returns.

Despite all the attempts to quantify investing, it is often more art than science. No single strategy is right for all investors. Some excel at charting and other forms of technical analysis, while some fundamentalists find bargains by digging into the minutiae of the financial statements. And there’s everything in between.

The best way for beginning investors to learn is to try a little of everything. You don’t have to get it right the first time, and you don’t have to put your capital at serious risk. So today, we’re going to look at five of the best stocks to buy if you’re new at investing. These may or may not beat the market over the next year. It would be fantastic if they did, but that’s not our point here. We’re simply looking to learn the ropes.

I’ll start with one of the very cheapest stocks in the market.

Value investing has trounced all other disciplines of investing over the years, at least according to several academic studies such as Fama and French’s landmark 1992 paper “Common Risk Factors in the Returns on Stocks and Bonds.”

But there is no such thing as a free lunch. While value stocks may outperform over time, they can be painful to hold. Sometimes cheap stocks keep getting cheaper.

Consider automaker General Motors (GM), which trades for about $34 per share. It’s one of the cheapest large-cap stocks in America right now, trading for just 5.5 times expected 2018 earnings and 0.3 times sales. To put that in perspective, the Standard & Poor’s 500-stock index – a group of 500 companies considered to be reflective of the American economy – trades for 18 times expected 2018 earnings and 2.3 times sales.

However, GM also looked cheap by these same metrics back in July, when it traded for more than $44 per share.

Value investing can be frustrating, but General Motors is worth a try. GM clearly is undervalued by most traditional metrics, and you’re being paid to wait while Wall Street figures that out. GM pays a 4.4% dividend, more than twice what the average S&P 500 company pays out right now.

To continue reading, see The following first appeared on Kiplinger’s as 5 Great Stocks to Buy If You’re New to Investing

This article first appeared on Sizemore Insights as Stocks for the Beginner Investor

Why You Shouldn’t Put ALL Your Money into an Index Fund

Cliff Asness doesn’t have the name recognition of a Warren Buffett or a Carl Icahn. But among “quant” investors, his words carry a lot more weight.

Asness is the billionaire co-founder of AQR Capital Management and a pioneer in liquid alternatives. For all of us looking to build that proverbial better mouse trap, Asness is our guru. My own Peak Profits strategy, which combines value and momentum investing, was inspired by some of Asness’ early work.

Unfortunately, he’s been getting his butt kicked lately. His hedge funds have had a rough 2018, which prompted him to write a really insightful and introspective client letter earlier this month titled “Liquid Alt Ragnarok.”

“This is one of those notes,” Asness starts with his characteristic bluntness. “You know, from an investment manager who has recently been doing crappy.”

Rather make excuses for a lousy quarter (Asness is above that), he uses his bad streak to get back to the basics of why he invests the way he does.

As I mentioned, Asness specializes in liquid alternatives. In plain English, he builds portfolios that aren’t tightly correlated to the S&P 500. They’re designed to generate respectable returns whether the market goes up, down or sideways.

You don’t have to be bearish on stocks to see the value of alts. As Asness explains,

You do not want a liquid alt because you’re bearish on stocks or, more generally, traditional assets. That kind of timing is difficult to do well. Plus, if you’re convinced traditional assets are going to plummet, you want to be short, not “alternative.” In other words, liquid alts are a “diversifier” not a “hedge.”

You should invest [in a liquid alt] because you believe that it has a positive expected return and provides diversification versus everything else you’re doing. It’s the same reason an all-stock investor can build a better portfolio by adding some bonds, and an all-bond investor can build a better portfolio by adding some stocks.

I love this, so you’re going to have to forgive me if I “geek out” a little bit here. My professors pretty well beat this stuff into my head when I was working on my master’s degree at the London School of Economics.

When you invest in multiple strategies that aren’t tightly correlated with each other, your risk and returns are not the average risk and return of the individual strategies. The sum is actually greater than the parts. You get more return for a given level of risk or less risk for a given level of return.

Take a look at the graph. This is a hypothetical scenario, so don’t get fixated on the precise numbers. But know that it really does work like this in the real world.

Strategy A is a relative low risk, low return strategy. Strategy B is higher return, higher risk.

In a world where Strategies A and B are perfectly correlated (they move up and down together), any combination of the two strategies would be a simple average. If A returned 2% with 8% volatility and B returned 16% with 11% volatility, a portfolio invested 50/50 between the two would have returns of 9% with 9.5% volatility. That is what you see with the straight line connecting A and B. Any combination of the two portfolios would fall along that line (assuming perfect correlation).

But if they are not perfectly correlated (they move at least somewhat independently), you get a curve. And the less correlation, the further the curve gets pushed out.

Look at the dot on the curve that shows an expected return of about 8% and risk (or volatility) of 10%. On the straight line, that 8% curve would have volatility of about 14%, not 10%. And accepting 10% volatility would only get you a return of about 4% on the straight line.

This is why you diversify among strategies. Running multiple good strategies at the same time lowers your overall risk and boosts your returns. The key is finding good strategies that are independent. Running the basic strategy five slightly different ways isn’t real diversification, and neither is owning five different index funds in your 401k plan. Diversification is useless if all of your assets end up rising and falling together.

This article first appeared on Sizemore Insights as Why You Shouldn’t Put ALL Your Money into an Index Fund

Best ETFs for 2018: This Isn’t the Year for Emerging Markets (DVYE)

The following is an excerpt from Best ETFs for 2018: This Isn’t the Year for Emerging Markets (DVYE).

Well, I should probably start this by mentioning that I no longer personally own the ETF I recommended in InvestorPlace’s Best ETFs for 2018 contest.

I recently sold my shares of the iShares Emerging Markets Dividend ETF (DVYE). While I still believe that emerging markets are likely to be one of the best-performing asset classes of the next ten years, it’s a minefield in the short-term. As I write this, the shares are down 4% on the year. That’s not a disaster by any stretch, but it is a disappointment.

There are a couple reasons for the recent underperformance in emerging markets. To start, the U.S. market remains the casino of choice for most investors right now. Adding to this is dollar strength. While dollar strength is good for countries that sell manufactured products to the United States, it’s bad for commodities producers, as a more expensive dollar by definition means cheaper commodities.

President Donald Trump’s trade war isn’t helping either. While it’s hard to argue that anyone truly “wins” a trade war, Trump isn’t incorrect when it says that our trading partners need us more than we need them. In a war of attrition like this, you “win” by losing less.

Of course, these conditions are not new, and virtually all of them were in place when I made the initial recommendation of DVYE. None of these factors would be enough for me to punt on emerging markets just yet. No, the problem is a greater risk that has only recently popped up: the twin meltdowns in Argentina and Turkey.

To continue reading, please see Best ETFs for 2018: This Isn’t the Year for Emerging Markets (DVYE).

This article first appeared on Sizemore Insights as Best ETFs for 2018: This Isn’t the Year for Emerging Markets (DVYE)

Best Stocks for 2018: Enterprise Products Is a Keeper

The following is an excerpt from Best Stocks for 2018: Enterprise Products Is a Keeper.

A 14% return is nothing to be ashamed of in a year where the S&P 500 is up only 8%. Yet it looks awfully meager when my competition in the Best Stocks contest is up 144%.

As I write, my submission in InvestorPlace’s Best Stocks for 2018 contest — blue-chip natural gas and natural gas liquids pipeline operator Enterprise Products Partners (EPD)  — is up 14%, including dividends, as of today. Yet Tracey Ryniec’s Etsy (ETSY) is up a whopping 144%. Chipotle Mexican Grill (CMG) and Amazon.com (AMZN) take the second and third slots with returns to date of 71% and 68%, respectively.

So, barring something truly unexpected happening, it’s looking like victory may be out of sight this time around.

Can’t win ‘em all.

While Enterprise Products may finish the contest as a middling contender, I still consider it one of the absolute best stocks to own over the next two to three years. Growth stocks have dominated value stocks  since 2009, but that trend will not last forever. Value and income stocks will enjoy a nice run of outperformance — and when they do, Enterprise Products will be a major beneficiary.

To continue reading, please see Best Stocks for 2018: Enterprise Products Is a Keeper.

This article first appeared on Sizemore Insights as Best Stocks for 2018: Enterprise Products Is a Keeper

A Stealthy Way to Max Out Your 401(k) for the Year

Our fearless leaders in congress don’t always get it right. If fact, I’d go so far as to say they generally make a royal mess of things.

But when they created the 401k plan in 1978, they created the single best tax shelter and asset protection tool in U.S. history. And importantly, they made it available to ordinary Americans and not only the superrich. It’s no exaggeration to say that the humble 401k offers better tax savings and lawsuit protection than even the most complex (and expensive) offshore trust scheme.

In 2018, you can defer a maximum of $18,500 of your income ($24,500 if you are 50 or older) and stuff it into your 401k account, not including any employer matching. Depending on how generous your employer is, matching and profit sharing can add thousands of additional dollars to your account every year.

Let’s play with the numbers. If you and your spouse are in the 24% tax bracket (combined annual income of $165,000 to $315,000), contributing the full $18,500 apiece amounts to $8,880 in tax savings. That’s real money, and it adds up fast.

You should make every reasonable effort to max out your 401k every year. But if the shekels are tight and you’re having a hard time making ends meet on a reduced paycheck, I have a little trick for you.

Dollars are Fungible

The thing you should always remember is that your cash is fungible. A dollar in your left pocket is no different than a dollar in your right pocket. With this in mind, you can “convert” taxable savings sitting in your bank account to tax-deferred savings in your 401k.

You can’t literally move money from your checking account to max out your 401k, of course, as the funds have to come out of your paycheck. But this comes back to what I said about money being fungible. If you have cash savings sitting in the bank, you can live off of it for a few months while you dump your entire paycheck into the 401k plan. Once your contribution is maxed out for the year, you go back to living off of your paycheck. The net result is that you will have moved your cash savings from a taxable account to a tax-free account.

Unlike IRA contributions, which can be made up until the tax filing deadline in the following year, 401k contributions have to be made during the current calendar year. So, if you want to save money on your 2018 taxes, you need to make the contributions before December 31.

If you have taxable cash on had that you want to “convert” to tax-free 401k money, you still have time to do it this year. But time is getting short, so if you’re going to make a move you should do it now.

This article first appeared on Sizemore Insights as A Stealthy Way to Max Out Your 401(k) for the Year

Today on Straight Talk Money: Elon Musk’s Tesla Turnaround and More

I joined Peggy Tuck today on Straight Talk Money, and at the top of the agenda was Elon Musk and Tesla (TSLA). Tesla reported its worst loss in history, yet shares rallied hard as a more conciliatory Musk promised profits in the quarters ahead.

Musk, by the way, was the inspiration for Robert Downey Jr.’s Iron Man character from the Avengers movies. It’s debatable whether that makes Tesla stock worth buying.

 

In the next segment, we talk about Apple’s (AAPL) epic rise to $1 trillion… and whether it makes sense for billionaires like Amazon’s (AMZN) Jeff Bezos to keep substantially all of their net worth in their own company. My answer might surprise you.

 

In the final segment, we chat about the best places to invest should inflation make a comeback and look at a list of 10 stocks that have recently raised their dividends by at least 10%.

This article first appeared on Sizemore Insights as Today on Straight Talk Money: Elon Musk’s Tesla Turnaround and More