We are well into the new year now, and the prediction game is reaching something of a frenzy.
By this point, I’ve read several hundred market predictions for 2020, and there is something of a consensus.
GDP growth will be around 2%, interest rates will remain low, stocks will provide single to low double-digit returns, and unless something goes horribly wrong in the economy, Donald Trump will be reelected.
There are very few people expecting a strong pick up in volatility or risk in the year ahead which makes me want to sit around with some very smart people and a bottle of bourbon to consider possible black swans that may occur in the next year to two with the potential for life-changing profits.
Now, I’ve made some money by making black swan bets on events that no one thought could happen where the math of the probability and payout calculation lined up correctly.
However, I’ve never made a nickel on a prediction in the stock market whether it was my own or someone else’s.
Making the type of precise projections that the Wall Street strategists and TV pundits make strikes me as a colossal waste of time and brainpower.
Companies for All Seasons
One of my favorites is what I call the “Set and Forget” Strategy.
With this strategy, you make one set of trades in your portfolio, then you walk away for a year before coming back to make the next set of trades.
I specifically built this large-cap, high-yield approach for those who want to maintain a core portfolio in addition to the more aggressive wealth-building techniques I routinely present to you here at Max Wealth.
It’s a strategy for serious money – the money you might typically invest in an index fund or mutual fund.
The universe is limited to large companies with market capitalizations over $10 billion.
To be included, a stock must have a 3% or higher dividend yield.
Next, the company had to have reduced its share count by at least 4% in the past year.
Once we’ve found all of the companies that made the shortlist, we buy the five qualifying stocks that have the lowest price-to-free cash flow ratios.
This approach has a beta of just 0.67, so it’s less volatile than owning the entire index.
In good markets, this portfolio does a little bit better than the index, with a long-term average of about twice the S&P 500s return.
But this strategy really shines is in lousy markets, where it absolutely crushes the S&P.
The most glaring example of its bear market resilience was back when the internet bubble collapsed.
The Set and Forget Strategy gained over 20% in 2000 as the index dipped by more than 10%.
In 2001 when prices plunged about 21%, the Set and Forget investor saw his portfolio drop by a whole 0.25%
The stocks that made this year’s cut are pretty impressive.
Two of the five have already been the subject of takeover talk in the second half of 2019 and could have something happen on the M&A front that puts money in our pockets in 2020.
|The Geniuses of Tomorrow’s Business Empires Are Here (They Want Your Help)|
MetLife Inc. (NYSE:MET) is a global insurance company that should see rising income from a strong labor market that boosts group life sales and a focus on retirement plans, which should also see increased flows.
I’m still not over the company firing Snoopy as its mascot, but there’s no question that this is a cheap stock that yields 3.3% right.
Over the past few years, they have reduced the share count by 4.4% annually.
The shares trade at less than six times free cash flows, so we’re getting a high-quality global leader at a bargain price.
Make It Matter
Hewlett Packard is a global leader in PCs and printers that trades for just ten times free cash flow.
A more reasonable bid for this company would be somewhere around $31 a share, in my opinion.
The stock is yielding 3.2% right now, and the 3-year buyback rate is 4.7%.
The Corner of Healthy and Profitable
Walgreen Boots Alliance, Inc. (NasdaqGS:WBA) is one of the largest pharmacy companies in the world, with global sales of more than $130 billion.
There was talk of a KKR & Co. (NYSE:KKR) led buyout of the company, but I can’t see who could get that financed. Still, if anyone could pull it off, it’s KKR.
In the meantime, the stock yields 3.38% right now, and the buyback rate is 6.1%.
It’s the richest of our final five as the stock trades for 16 times its free cash flows.
Expect More from This Regional Player
Now it’s onto my favorite sector. Regions Financial Corp. (NYSE:RF) is one of the larger regional banks with 1,899 ATMs and 1,469 branch outlets in the South, Midwest, and Texas.
Regions has a strong balance sheet and a fantastic loan portfolio with minimal signs of credit issues.
High-yield banks at low multiples of cash flows and earnings are a money maker and one of my favorite investments.
Regions trades at just seven times free cash flow and yields 3.7% right now, so it fits the definition.
The buyback rate is over 7%, so management is sharing the wealth.
Helping Communities and Investors Thrive
Our final pick for the portfolio is Cleveland-based KeyCorp (NYSE:KEY).
This regional bank has a portfolio including 1,197 branches and 1,572 ATMs in New York, Ohio, Washington, Pennsylvania, Oregon, and Connecticut.
KeyCorp also sells for seven times free cash flows, and its dividend yield is 3.8%.
They reduced the share count last year by right around 5% and plan to repurchase up to $1 billion in common shares between the third quarter of 2019 and the second quarter of 2020.
Set and Forget is the ’85 Chicago Bears of investing strategies with its legendary defense and solid offense.
It’s unconventional, but it works, and it works very well.
This is the perfect strategy for those who want to grow their nest egg faster than market rate without having to worry over it throughout the new year, and you can rest easy at night as you continue down your path to building life-changing wealth.
To the Max,