Get Boring! How to Look for Boring Stocks That Will Win
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the markets soaring to their new all-time highs over the past couple of weeks there have been many doubters wondering if we’re even in a position to sustain such levels. Maybe we are, maybe we aren’t. Like Warren Buffett, we shouldn’t care what Mr. Market is up to, we should just be looking for a bargain. So, are there bargains out there, even at these high levels? You bet there are! You just have to be willing to dive in and look around.
The question after that becomes, where do I dive? Who knows? I know when I’m browsing around looking at companies I tend to look at the ones that are on the tip of my tongue, the companies whose services I have used most recently. Take Google (NASDAQ: GOOG) for example. This company is popular, its stock price is soaring and some, myself included, would still consider this stock a buy based upon its future potential and current earnings.
Woah, woah! That’s speculating you’re screaming. In some form it is and I’d bet that Benjamin Graham & Co. wouldn’t be willing to take a bet on Google based upon future products. So, if speculating isn’t allowed in the value investor’s portfolio, how do we find and buy stocks that will outlast any potential major pullback? You get boring!
Google provides excitement; they’re a high-flying tech company whose name is now a verb. You’d be hard pressed to find people who haven’t heard of the service in the United States, even if they do refer to it as “The Googler”. Outside of search, this company is constantly in the news for consistent innovation in the most unthought-of of places. A driverless car thought to be worth $2-trillion, you’ve got it! Cyborg style glasses? Go right ahead! Point is, Google has a lot of potential, but a lot of risk and speculation associated with their incoming products. Either way, they still represent value to me at these high levels and I’d recommend them to anyone.
How to Get Boring
I’m sorry for getting you all excited with the company that is Google before jumping into the real bargain areas, the boring stocks. Look at it this way though, a winning portfolio isn’t boring and a winning portfolio is something that the boring category can bring you.
Quick question time! Do you think Warren Buffett became a multi-billionaire by investing in the latest hot craze? He didn’t. I’m not promising billions by following this Wonderful Boring Stock strategy, but I am promising a better way to look at things.
One of the things that I’d consider boring is low volatility. Traders want the high volatility in a stock to be able to make money day-after-day, we want the low stuff. Low volatility shows, at least to me, that a stock is generally too uncared about to go bouncing around all day.
So, let’s go out and find some uncared about, low volatility stocks! What did you find? I found that I still get a pretty good mix of stocks, and some big names, but the focus clearly seems to be on insurance based companies.
Aflac (NYSE: AFL) is on my list. This company has a P/E of 8.4 and it pays out a dividend that yields 2.73%. You’ve likely seen commercials for this supplemental health and life insurance giant, they’re the ones with the duck. How bad did that sentence just sound? Life insurance, it almost sent me to sleep. Over the last year though, this company has returned 13.5% to investors. That’s slightly below what an index fund would have got you, but not too shabby.
How about H&R Block (NYSE: HRB)? Eww, taxes. Don’t get all caught up in that! This company has gained 56.5% over the past year. Yes, that obliterated the market as a whole. Along with those gains, investors would have also collected a dividend yielding 3.19%. You can’t go telling me that picking up 50% gainers is boring.
Where to go from here
The markets are high, I can see that. Don’t let the financial pundits on CNBC scare you away. The high flying companies may end up going through some hard times in a downturn but I don’t see many of the boring stocks dropping like lead bricks.
Go screen for some low volatility stocks and look to see what you can find. I’d recommend looking at those with low P/E ratios, awesome balance sheets and large moats. If you can find companies that have been profitable for decades, jump on those too.
These stocks will move slowly, but they will move up and you’ll eventually beat out all of the latest and greatest stock pickers. Ever read The Tortoise and the Hare? That’s your life as a boring stock picker. It may not seem the best route, but you’ll eventually win out.
Ash Anderson has no position in any stocks mentioned. The Motley Fool recommends Aflac and Google. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!