For Immediate Release
Chicago, IL – February 26, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Exxon Mobil (XOM), General Electric Company (GE), Johnson & Johnson (JNJ), Wells Fargo (WFC) and Verizon Communications Inc. (VZ).
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Here are highlights from Monday’s Analyst Blog:
Demystifying the ‘Great Rotation’
It has been reported that there were very large net inflows into equity mutual funds in January, which reversed a nearly two-year trend. As a result, equity inflows surpassed purchases of bonds by a wide margin last month.
However, for there to be a meaningful rotation, funds need to flow from bonds to stocks. Bond funds still garnered tens of billions of dollars in January, which (though less than before) is counterintuitive to the notion of a Great Rotation.
The ‘dash from cash’ theory is also plausible but similarly weakened by continued accumulation in money market funds. Instead, investors appear to be allocating more for stocks, less for bonds and trimming their cash reserves.
The economy-wide allocation for equity in December 2012 was not terribly shy of normal levels, thereby stifling theories that investors have been keeping away from equities (and are therefore now more likely to embrace stocks).
For those still seeking shelter in bonds, expecting the generous returns from the past three decades would not be wise. Investors who consider the current government bond yield of lower than 2% a bad deal wouldn't like it a bit to see interest rates pick up again. Financial markets were temporarily roiled last week on rumors that the Fed would gradually reduce its multi-billion-dollar monthly bond buybacks which have kept rates rock bottom thus far.
The chase for yield is therefore increasingly pushing investors to embrace higher levels of risk, be it in the form of junk bonds or emerging market bonds. Even the most bearish of equity pundits are re-evaluating their 'wait and see' position, as they are concerned about missing out on reasonable domestic stock valuations.
The S&P 500 is trading at a P/E of about 14x, which is well within its historical range. Equities, therefore, still offer compelling value despite the run-up in prices since the Great Recession. Not only are equity valuations favorable, but many offer a better yield than government bonds.
Exxon Mobil (XOM) provides a dividend yield of about 2.58%. General Electric Company (GE) offers a yield of 3.45%. Johnson & Johnson (JNJ) and Wells Fargo (WFC) stand at approximately 3.36% and 2.51%, respectively. We are not even considering share buyback programs of some of these income-oriented stocks, which may drive up their composite yield by as much as a couple more percentage points.
Using our value-oriented approach, we found gazebo stocks in other sectors as well. Verizon Communications Inc. (VZ), for example, offers a strong dividend yield of 4.96%.
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