Question:
I just sold some of my losers for the year, and I was looking to invest the money in some faster-growing small cap stocks. Do you have any that you think will do well in the new year?
Answer:
We hesitate to give you individual small cap names. We believe Small Cap stocks can be a difficult game to play. Therefore, if an investor needs to be diversified in Large Cap stocks, one needs to be even more diversified with Small Cap stocks. If you are looking for Small Cap growth, we believe an investor should be better served by exchange traded funds (ETFs) or mutual funds that track a Small Cap index. We like Gabelli Small Cap Growth Fund (GABSX) or some low-cost ETFs, such as, iShares S&P MidCap 400 Index (NYSEARCA: IJH) and iShares S&P SmallCap 600 Index (NYSEARCA: IJR). We feel these choices are well diversified among the sectors and industries.
Question:
Considering the uncertainty ahead, why is the market up?
Answer:
We believe it is because there is no where else to go. We believe bonds are overpriced, and cash at this time would be a poor choice. Companies are paying great dividends as they are more shareholder considerate than they have been in the past. Many are focused on enhancing shareholder value.
We do not believe our situation is similar to 2008. If, or when, we go over the fiscal cliff, it might be difficult; however, probably not as bad as it was in 2008. American International Group (NYSE: AIG) was a triple-A-rated company that came to the brink of going under in 2008. Had that occurred, we truly would have had to start over from scratch.
Today, an investor can put together a portfolio of strong, high-quality companies that yield more than 4% in dividends. Our own dividend portfolio yields more than 4% and has a dividend growth rate of almost 7%. We believe this is a gangbuster investment choice compared to a 10-year Treasury bond at 1.71%.
Question:
So I’m a long time listener, and I remember when you were burned by Marsh & McLennan. What are your thoughts on it these days?
Answer:
We watched Marsh & McLennan Companies, Inc. (NYSE: MMC) for many years before we initiated a position. The next day, it was announced that the company was at the center of a civil suit and the stock dropped 45% in one day. We sold it that same day.
Much like the day before we purchased shares, Marsh & McLennan looks like a good company. It operates as a parent company of a number of insurance consultants, brokers and intermediaries. With Hurricane Sandy destroying much of the northeast, insurance rates will likely increase in the affected areas; therefore, brokers like Marsh & McLennan stand to benefit. The company also has personnel and human resource related services. It should do well as employment continues to increase.
The company trades at a P/E multiple slightly above the market. While it is not a screaming buy, we would not avoid it. However, you may be able to find other insurance holdings that are similar with higher dividend yields. If you own shares of Marsh & McLennan, we suggest that you continue to hold them.
Question:
I bought shares of Hershey as a present for my niece several years ago. Should I add to it this year, or should I seek some other kid-friendly stock? Honestly, I don’t know what her parents intend for her account. She’s only 6 this year. I have no idea if this is earmarked for college or just one of the “non toy” presents she gets and never thinks about.
Answer:
We like stocks similar to The Hershey Company (NYSE: HSY) for children, as they are familiar with the chocolate candy. We also like The Walt Disney Company (NYSE: DIS), because children are familiar with the movies and entertainment parks. Others “kid-friendly” names we like include McDonald’s Corp. (NYSE: MCD) and Hasbro, Inc. (NASDAQ: HAS).
While we are OK with a few shares of Hershey as a gift for a child, we do not recommend the stock, as a big portion of a portfolio. One aspect we prefer avoiding in a company is concentrated voting rights and control. This company is family run through a charitable trust. In our opinion, they have not always made decisions that were in the best interest of the shareholders.
The company sells for around $70, which is 23 times earnings. It has a dividend yield of 2.5%. We recommend McDonald’s, which is trading around $88 a share, has a P/E of 16.7, and a dividend yield of more than 3%, which is growing at 10% to 11% a year.
At Henssler Financial we believe you should Live Ready, which includes knowing understanding your investments. If you have questions about your stock or mutual fund holdings, you may call our experts at 770-429-9166 or email at experts@henssler.com.