3 Stocks to Pick up Despite Buying Stampede
Casey is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Events of the past 45 days have been called by some a "buying stampede." And within it we've seen 10 straight up days for the Dow Jones, an unprecedented streak since I've personally started investing six years ago. For value-minded and fundamental investors, this can be a frustrating time. After all, with indices hitting all new highs, bargains are increasingly difficult to find.
But I made a similar complaint in an entry on March 1, so we won't go down that same road this time. Once again, I have three stocks which I believe are a good value and trade at a discount despite averages being at multi-year highs. The best thing about these three plays is that they are all "best of breed" among their peers.
Realty Income (NYSE: O): The monthly dividend company
Realty Income is a triple net-leasing Real Estate Investment Trust. By triple net I mean that tenants will pay property taxes, insurance and building maintenance. Realty Income acquires and owns commercial real estate, collects rent and distributes dividends monthly. They own more than 2,500 properties in 49 states spread to over 100 tenants in long-term lease agreements, and their market cap is now just under $8 billion.
It's known as "the monthly dividend company," and Realty Income has lived up to that name for over 500 consecutive months, raised the dividend over 60 times and have never had to cut the size of its distribution. This includes 2009 when many other REITs were cutting dividends.
One of the reasons Realty Income is so consistent is the long-term nature of its leases. The REIT has targeted retail tenants in non-discretionary markets with low price-points and services, which can't be bought on the Internet. Management is very selective with whom they get into lease agreements with and Realty Income has a good reputation among retail operators for being a fair and desirable acquirer of property.
As of Friday, March 22, Realty's dividend yield stands at 4.89%. The stock's price is likely down due to a recent secondary offering to fund an accretive acquisition. Although the price-to-FFO is fairly high at 19.1, I believe the dividend yield represents a compelling value. From a technical standpoint, Realty has just bounced off its 50-day moving average.
Linn Energy (NASDAQ: LINE): Stable, high-yielding oil and gas company
Linn Energy is an independent oil and gas producer with a diverse asset base in the US. Its core focus is in the Mid-Continent (Kansas, Oklahoma, Permian Basin, Bakken, East Texas), Michigan, the Rockies and most recently California. The company has a balanced portfolio of both oil and gas, and it produces a nearly equal amount of each. Its strategy is to acquire long-life, high-quality assets, squeeze as much production out as possible, thoroughly hedge that production to minimize risk and finally -- to distribute maximum cash to shareholders. Linn's market cap is $8.84 billion. Those who do not want a Master Limited Partnership [MLP] in their IRA may buy Linn under the symbol LNCO.
Linn is the most conservatively-hedged of the MLPs. The sale price for 100% of its production is already locked in through 2016 with all oil being sold at over $90 per barrel, which makes its marginal cash distribution coverage ratio of 1.1 times more secure. Linn is the best cash distribution-centered way to be involved in domestic energy production. Like Realty Income, Linn has never had to cut its distribution.
Despite the company's best of breed status, the stock has really been down on its luck lately. After having its hedging policy questioned by a silly Barron's article and issuing a straightforward response, Linn just hasn't gotten much sustained traction to the upside. After falling substantially in the last week, the stock is now trading at $38.44 per share with a yield of nearly 8%.
Gold in SPDR Gold Trust ETF (NYSEMKT: GLD) shares
Gold is a timeless investment if there ever was one. Many buy the precious metal as a hedge against inflation or just outright economic collapse. Over the last 18 months, the price of gold has gone nowhere despite central banks around the world effectively printing money. With recent news that the Bank of Japan will aggressively be buying assets with the goal of hitting a higher inflation target, all three major central banks now have a policy of quantitative easing.
I believe the fundamentals for gold are therefore strong and the recent drop in price since late 2012 represents a good chance to accumulate the asset. My favored way of buying gold is through the SPDR Gold Trust ETF, which is ticker symbol GLD. This ETF is flexible and easily traded with minimal trust expenses. While the physical gold is stored in an HSBC vault in London and not in your safe, the transaction costs here are minimal. Consider adding some gold to your portfolio.
Although stocks have had a huge run, there are still a number of great companies out there that can be bought for a reasonable price. I believe that Realty Income and Linn Energy are just that. Gold is also down substantially and can be picked up here, and the best way to do that is through the SPDR Gold Trust ETF, which is both secure and flexible.
I will be writing entries on an almost-weekly basis, providing recommendations on great businesses that I believe can be bought at a good value.
Casey Hoerth is long GLD, LINE and O. The Motley Fool has no position in any of the stocks mentioned. 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!