There are more gains to be made buying these boringly good shares.
Apart from cricket, the good times continue to roll. Last week, the FTSE 100 index rose another 2.7% to stand at 4,732.
At that level, it has now broken out above the 3,900 to 4,700 range I predicted the market would trade at during 2009.
Astute readers will also notice the index has already traded lower than 3,900 this year, if nothing else providing ample evidence that an alternative career for me in the horoscope industry is a real possibility.
The FTSE 100 is now up an astonishing 36.7% from its 2009 low. It has risen in 16 out of the last 20 trading days. In the last 7 days, these selected larger companies have shot significantly higher…
There are two common themes in the above companies:
- they are all what I consider to be recovery stocks; and
- their total dividend yield is 0%.
Dash To Trash
The dash to trash continues. There's nothing necessarily wrong with buying shares in beaten down companies. After all, even the very worst companies, presuming they are not going to go bust, are cheap at the right price.
Avis Europe (LSE: AVE) at 3p for example? The shares now trade at 27p, a cool 800% gain for those people brave enough to buy when the stock market was imploding. Or what about buying Barratt Developments (LSE: BDEV) when they traded at 45p? Just a few months later and the shares of the homebuilder now stand at 222p.
And then there are the banks. I've been bearish on them for a while now, starting when I sold my entire holding in Barclays at around 300p. Barclays are up over 20% since then.
Selling Too Early
Still, I don't mind being wrong when selling. I don't mind selling too early. And I'll have no regrets if Barclays jumps to 600p next year. It's no use crying over spilt milk.
But I digress somewhat. I can't help feeling this market has gotten ahead of itself. It appears to be pricing in a pretty substantial economic recovery, starting very soon.
It's no secret that I believe we're in for a long and drawn out period of mediocre economic growth. We've just lived through, and are still living through, the biggest recession since the Great Depression. Things don't just get back to normal in the space of 12 or 18 months.
If I'm right, I expect the stock market to ultimately reflect this new reality. At the moment, it is thinking way ahead, to days of strong economic recovery and ultimately inflation.
I have my doubts as to whether inflation is our greatest threat. I'll have more on that thought another day, but for now, given how far and how fast the market has run, there really is only one type of company to buy right now.
The One Type Of Company To Buy Now
It seems obvious, but with many investors chasing trash stocks and the next six-bagger, they are ignoring the obvious.
The clue was above. The 5 companies mentioned above have a total dividend yield of a big fat 0%. They are the Ravi Bopara's of the stock market.
Why investors would chase these shares higher and higher is beyond me. If they are looking for an instant five-bagger, they should slap down £1,000 on England to win the fifth cricket test at The Oval. Of course, unlike most share investments, by betting on England you could lose all your money. But at least you'll know quickly if you're a winner or a loser.
A Special Free Report
Surely the better option is to buy dividend-paying companies. You can buy a company like Vodafone (LSE: VOD) and earn a low-risk dividend yield of over 6%. Or Unilever (LSE: ULVR) and Diageo (LSE: DGE), both yielding over 4%. They may not be sexy shares, but who needs excitement when you can earn low-risk dividends like that?
If you'd like to find out the names of similar companies, including the name of the one FTSE 100 company we think has one of the safest dividends on the market, check out our special free report titled "Our Number One "Recession Proof" Stock. The report is absolutely free.
More on the economy and the markets:
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> Bruce Jackson does not have an interest in any of the companies mentioned in this article.
