Smart people like the folks at Barrons are talking about there being too many bulls and not enough bears in the market today. This is a natural response to a broad based 30% rise in the stock market over the last year. Many investors were hurt badly during the 2008 market crash and are absolutely pleased to have been able to buy in January and hold for the entire year. But does fundamental analysis of the market, world economy, and the volatile economic situation in China indicate that the market will simply continue to rise through 2014? The point of this discussion of stock picks for 2014 is that some stocks are recession proof. Some stocks even do better when the economy is in trouble. Let us look, as an example for stock picks for 2014, at dividend stocks such as Southern Company – SO, a utility with a 36 Billion market cap.
The Southern Company – and Other Utilities
The Southern Company started 2004 with a valuation of $33 a share. It has paid 41 dividends in the last ten years and currently has a dividend yield of just less than 5%. Its quarterly dividend has crept up from 35 cents a share a decade ago to 50 cents share today. A threat to the value of this stock is the prevailing interest rate. When the Fed started talking about reducing the quantitative easing stimulus program in May of 2013 interest rates went up a bit and the value of the Southern Company fell from its peak of $48 to its current value of $40 a share. As the Fed backs off of its stimulus program we can expect to see interest rates go up farther and we can expect to see the price of Southern Company stock fall farther. However, the dividend that this utility pays comes from a very stable business that will not suffer unduly if the Fed backs off its stimulus program as the economy improves. If the stock falls another $10 a share it will be paying a dividend of more than 6%. Our belief is that The Southern Company belongs in your list of possible stock picks for 2014, once interest rates rise and the market falters.
Here are a few more utilities to consider:
|DUK||Duke Energy Corp||68.24||48.25B|
|NEE||NextEra Energy, Inc.||84.28||36.38B|
|TE||TECO Energy, Inc.||17.01||3.70B|
|NRG||NRG Energy Inc||28.59||9.61B|
|XEL||Xcel Energy Inc||27.55||13.73B|
Other factors to consider when including utilities in your stock picks for 2014 are that these are largely recession proof stocks. If things go bad in China, people in the USA still need electricity for their homes. Energy costs have gone down with the advent of sustainable fracking technology which fact benefits all utilities.
What Constitutes a Vulnerable Stock?
Your stock picks for 2014 should not include vulnerable stocks. A time honored way to pick stocks is to look a recent profits and quality of management. A contrarian view is to look at the strength of a brand name. For example, Coca Cola can make a lot of mistakes and even have a bad quarter and the entire world still recognizes and wants a Coke. Microsoft is not growing rapidly but it is an institution that is largely recession proof. On the other hand Apple is riding a wave of success and needs to pull a magic rabbit out of the hat every year to stay on top. Consider these thoughts when choosing Coca Cola – KO, Apple – APPL or Microsoft – MSFT for your stock picks of 2014. And, by the way, there is nothing wrong with investing in beer or other things that people consume during both good and bad times!