Fiat Chrysler and Lincoln National Show Value and Momentum
Posted: February 06, 2018
Momentum investing – putting money into stocks that have been rising – was the most successful investment style in 2017.
Value investing – choosing stocks that are cheap – was a bit out of favor last year, but it is my favorite style for the long term.
Therefore, I think this is a good time to look for stocks that possess both value and momentum. Allow me to suggest five for your consideration.
Fiat Chrysler
Auto manufacturers are notoriously cyclical, rising and falling with the tides of the economy. Nonetheless, Fiat Chrysler Automobiles NV (FCAU) looks good to me at the moment.
Shares of the London-based automaker rose about 96% last year, from near $9 to more than $17. Nonetheless, they still are valued at only 7 times earnings and 0.2 times revenue. Car makers’ stocks often sell for low multiples but, in this case, I think the shares are a bargain. Analysts expect a 29% jump in profits this year.
The company has ten brands of cars and trucks. Chrysler, Dodge, Fiat and Jeep provide the bulk of sales. Maserati, Lancia and Alfa Romeo provide the sizzle.
Lincoln National
Selling for only 11 times earnings, Lincoln National Corp. (LNC) shares rose 16% last year, which is less than the S&P 500 rose. But don’t sniff: That rise came on top of a 32% return in 2016.
The company, based in Radnor, Pennsylvania, sells annuities, life insurance and disability insurance, and administers pension plans. It’s a slow-growth business but a steady one.
The dividend yield is modest, 1.6% at the moment. But the company has raised its dividend regularly in the past few years, and, in my opinion, there is ample room to raise it more.
LyondellBasell
LyondellBasell Industries NV (LYB) is one of the largest plastic and chemical producers in the world. Its world headquarters are in the Netherlands; U.S. headquarters are in Houston, Texas. Its shares rose about 29% last year.
Simultaneous economic improvement in Europe, Asia and the U.S. creates a great climate for LyondellBasell, since its industries are undeniably cyclical. If you think, as I do, that economic strength will persist or grow during the next year, the stock is probably a good bet.
The shares sell for 11 times earnings, which I consider favorable in this environment. (The Standard & Poor’s 500 Index fetches 22 times earnings right now.)
Piper Jaffray
Rising interest rates tend to help financial firms, including brokerage houses and investment banks such as Piper Jaffray Companies (PJC) of Minneapolis, Minnesota. Companies are more likely to hire them to manage stock offerings as borrowing from banks becomes more expensive.
Brokers also make more money from stock loans when interest rates climb. And, if rising rates are associated with economic strength (as is the case now), investors’ appetite for trading is stimulated.
Piper Jaffray shares have more than doubled in the past two years. However, they don’t seem exorbitantly valued at 13 times earnings.
Jupai Holdings
Finally, and most speculatively, I recommend a money management company in China, Jupai Holdings Ltd. Obviously, China has looser regulations and accounting standards than the U.S. does. Nonetheless, it is the world’s second-biggest economy, and has been growing rapidly.
Jupai is highly profitable, has no debt, and increased its revenue at a 49% clip last year.
Performance Record
This is the 32nd column I have written (from 2000 to the present) on stocks that possess both value and momentum. The average one-year total return on the first 30 columns (all the ones for which one-year performance can be calculated) has been 15.3%, compared to 9.0% for the Standard & Poor’s 500 Index.
Recommendations in 22 of the 30 columns have been profitable. They have beaten the S&P 500 in 17 cases.
Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.
My recommendations from a year ago didn’t beat the index. They rose 18.1%, helped by a 97% gain in TopBuild Corp. (BLD), which makes building materials. My main benchmark, the S&P 500, was up 22.9% from February 7, 2017 through February 2, 2018.
I had losses in Dorian LPG Ltd. (LPG), which distributes liquefied petroleum gas, and United Therapeutics Inc. (UTHR), which specializes in drugs for pulmonary hypertension. Both of those stocks dropped more than 20%.
Disclosure: I currently have no positions in the stocks discussed in today’s column, for myself or clients.