The New York Times reported last week that the number of homeless people living in subways and on the street in New York City surged 34% in the past year. It was a very shocking statistic, and one that underscores the deteriorating conditions in one area of the U.S. When contrasted to official labor statistics, which often change merely by only 1/10th of a percent each month, the report highlights the disparity between government data and real conditions.
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Seemingly going hand in hand with people going "home-less", the number of homes for sale rose 9.5% in February to 3.59 million existing homes for sale according to the National Association of Realtors (NAR). NAR chief economist Lawrence Yun noted in the release that "the housing recovery is fragile at the moment".
The worries of a fragile housing market have led to a fragile stock market as well, as seen in the tepid movements of the market over the past five to six months. The DJIA has been going back and forth between 10,000 and 10,900 since November 2009. It apparently can't decide which way to go, and the S&P 500 has been doing the same.
If looking at just fundamentals, the S&P 500's fair value can be estimated to be around 900-950 according to a Gordon growth model of valuation, so current valuations appear to be rich. But there is no way to tell when the market will revert toward its real value (if it ever will), which is why investors should take a look at some low beta, high-yield stocks. A low beta stock will mitigate some of the impacts of a correction while providing income in the meantime.
Here are seven stocks with both low betas (less than 1) and high yields:
|Annaly Capital Management||NYSE:NLY||16.86||0.44|
|Anworth Mortgage Asset Corp.||NYSE:ANH||16.47||0.35|
|Linn Energy, LLC||Nasdaq:LINE||9.96||0.65|
|Data collected March 26, 2010|
Annaly Capital Management tops our list in terms of yield at 16.86%, although JPMorgan recently downgraded it to "neutral" from "overweight". A lack of potential upside catalysts was cited as one of the reasons for the downgrade. However, for an income-oriented investor, Annaly Capital could still be attractive to look at for both its high yield and its defensive beta.
Also note that the top three yielding stocks in this screen are all real estate investment trusts (REITs).
The Bottom Line
Like in the periods before the dotcom bubble when investors treated anything associated with the internet as the Holy Grail of stocks, nowadays anything associated with real estate, especially mortgage pass-through securities, are treated like radioactive waste. However, value can be found in areas that have fallen out of favor with investors and this list of stocks can serve as a good starting point for further research. (For related reading, take a look at Big Dividends in Oil and Gas.)
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