The U.S. stock market is clearly in a correction mode. Investors who pay attention to valuation should not be too surprised to see this market selloff taking place. Beginning in March, 2009, the S&P 500 went from 660 to over 1,300 in just over two years. Such a breathtaking rally can not last indefinitely. And when the party ends, a sharp pullback should come as no surprise. What goes up must come down, and the higher the trajectory, the more rapid the descent.
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Boring is Great
Many companies considered "boring" are simply not examined closely enough. Everyone is trying to figure out how many iPads Apple (Nasdaq:AAPL) is going to sell next month in order to come up with a dazzling earnings number. And while Apple is a fantastic business with a great outlook, it's not the only place to look. Burgers aren't as sexy as iPhones, but McDonald's (NYSE:MCD) has been anything but boring to investors this year. Amidst the market turmoil, the burger giant has held its own. Thanks to successful new product introductions and the fact that McDonald's now gets the majority of its sales from outside the U.S., sales and profits continue to grow. Even though shares trade near a 52-week high of $83, the stock still yields 3% and trades at 17-times earnings. That's not an absurd multiple for a dominant restaurant chain that continues to mint money from its franchising operations. (For more, see Traders Showing An Appetite For Restaurant Stocks.)
Boring is Beautiful
Newell Rubbermaid (NYSE:NWL) is another name you won't hear about much from the investment community. Yet this is a $4 billion business that has generated healthy free cash flow for years. In 2008 and 2009, during the height of the recession, Rubbermaid generated $300 million and $450 million in free cash flow, respectively. Shares trade hands for $14.50 (14-times trailing earnings), and yield 2%.
American Electric Power (NYSE:AEP) is a utility giant that primarily serves the Mid-Eastern and Southern sections of the United States. Shares pay a healthy and safe yield of 5%, and the dividend payout has been growing for years. Its business is boring, but very stable, and as such, the share price has not been affected by this recent market selloff. (For more, see Trust In Utilities.)
The Bottom Line
As with any company, boring or exciting, paying a good price is key. "Boring" stocks may have boring returns, but losing little or no investment capital when markets are in turmoil is anything but boring. (For more, see Grandpa's Favorite Stocks.)
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