The Motley Fool's Weekly Editors' Picks
Fools were out and about this past week in an investing world jam-packed with actions and ideas. Here are three articles you might find useful as you decide how to invest your money.
Why Simple Investments Win
Fool analyst Morgan Housel makes the case that boring can be beautiful for long-term investors. He pulls up data showing that, since 1995, Microsoft stock has been outperformed by stocks including Clorox and McDonald's (NYS: MCD) , which returned 560% and 540%, respectively, to Microsoft's 511%. Stock powerhouse Altria (NYS: MO) clocked the competition with a 1,300% gain over the same period.
"The fact that any period -- a 17-year period, no less -- can be found during which a company with a virtual monopoly on a booming industry underperforms the dullest of products is extraordinary," Morgan wrote. Altria is in a class by itself, Morgan reported, being the single best stock to own from the 1950s to the early 2000s. The Marlboro maker returned nearly 20% a year for 50 years. "During a period when new industries transformed the lives of nearly everyone in the developed world, the most money was made in a company that stuffed tobacco into paper tubes the way it had for more than a century," he wrote.
Morgan draws two lessons from his research: (1) Valuation always matters, and (2) simple products that rarely change often make better investments than those undergoing breakthroughs. A company that has to keep innovating faces a tougher time than a company that thrives on a product like toothpaste or bleach.
Read the article for more insight on why simple investments might be right for you.
Is the Party Over for Dividend Stocks?
Morgan also talked a bit more about valuation during a recent edition of the MarketFoolery podcast. Dividend stocks are good investments, he said, but some have been pushed too high by investors desperate for income from their investments. "When you start chasing something in search of yield without much respect to valuation, it usually doesn't end well," Morgan said. He noted that some utilities and telecoms are trading at their highest value in a decade or two, pushing their yields down. "It's hard to make the case that the risk/reward trade-off there is very favorable anymore," he said.
Asked to name names, Morgan said he owns shares of Consolidated Edison (NYS: ED) but has cut back his position and wouldn't buy more at the current price. It's done very well in recent years, but the stock's yield is under 4%, Morgan said, adding: "If you told someone a few years ago that a slow-growing utility stock would yield less than 4%, I think they would have laughed at you. That's one I definitely wouldn't be buying right here."
Watch the video for more insight on which dividend stocks might be too pricey.
3 Keys for the Rest of 2012
Energy stocks are likely to remain volatile, according to Fool analyst Dan Caplinger, and this could provide investors with opportunities to buy. The price of natural gas, kept low by oversupply, recently saw a bounce, but the U.S. Natural Gas ETF (NYS: UNG) remains down 25% for the year, Dan reported. Yahoo! Finance tags its 52-week range at $14.25 to $46.40.
Solar energy stocks have been whacked even harder, Dan noted. "First Solar (NAS: FSLR) has lost half its value and Chinese solar makers have proved especially vulnerable to poor conditions in the industry," he wrote. First Solar stock has ranged over the past 52 weeks from $11.43 to $134.21, according to Yahoo! Finance.
"Until the macroeconomic picture gets clearer, you can expect to see more chances to get into energy stocks," Dan wrote. "If you share the long-term view that rising demand for energy will inevitably move prices higher, then these pockets of weakness should give you good buying opportunities."
Read the article for more keys to the rest of 2012.
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At the time this article was published Fool online editor Kris Eddy owns no shares of any stocks mentioned in this article. The Motley Fool owns shares of Microsoft, McDonald's, and Clorox.Motley Fool newsletter serviceshave recommended buying shares of McDonald's and Microsoft, as well as creating a bull call spread position in Microsoft. The Motley Fool has adisclosure policy.We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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