The Buzz

All markets and investing news all the time

Investors aren't bringing sexy back

April 7, 2014: 4:02 PM ET

Boring is back.

In a choppy market, investors are shifting their strategy, eschewing the once sizzling sectors (think: tech) in favor of the more mundane variety (think: utilities).

Dividend-paying companies, long-considered a tad too defensive, are especially in vogue now.

Red hot names such as Tesla (TSLA) and Netflix (NFLX) have tumbled this month, while utility stocks, known for their healthy dividends, have jumped. The Utilities Select Sector SPDR Fund (XLU) is up over 9% this year. Its top holding, Duke Energy (DUK), sports a dividend yield of 4.4%.

"Investors are flocking to what is known as opposed to what is promised," said Jim Russell, Senior Equities Strategist for U.S. Bank Wealth Management.

The Utilities Select Sector SPDR® Fund has had a huge run this year.

Russell said the rotation comes as investors start to worry about possible weakness in first quarter earnings, which were likely hampered by unusually harsh winter weather. That, in turn, has caused them to fret about sky-high valuations.

Related: Brace yourself for ugly corporate earnings

"While there is a lot of promise there, we think some stock prices outran any kind of semblance of reality," he said.

Amazon (AMZN) , for instance, which has tanked about 20% this year, trades at almost 170 times 2014 earnings. That's compared to almost 16 times earnings for the S&P 500.

While the about-face is painful for investors who bet that the high fliers could continue to soar, it's vindication for those like Robert Browne, Chief Investment Officer for Northern Trust.

Browne said he's stayed away from many tech stocks with valuations he had trouble justifying. He instead likes to get paid in dividends, because they tend to instill discipline on company management.

"This past month has finally been some positive payback for us," he said.

But the shift from momentum stocks to conservative companies may be most pronounced in the healthcare industry.

Biotechnology stocks have pulled back sharply after swelling earlier in the year when investors bet that firms with promising drugs could deliver big returns. After rising more than 20% for the year by mid-February, the iShares Nasdaq Biotechnology ETF (IBB) is now in the red.

The iShares Nasdaq Biotechnology ETF has had a wild ride this year, and it now in negative territory.

At the same time, Merck (MRK) is up 11% year to date, and Johnson & Johnson (JNJ) has risen over 7%. Those healthcare giants pay dividend yields of 3.2% and 2.7%, respectively.

So what does it all mean?

Bumpy seas ahead, according to Michael Gayed, Chief Investment Strategist for Pension Partners in New York. In research dating back to 1926, Gayed found that periods in which utilities were popular were followed by greater overall market volatility.

And with the yield on the 10-year treasury note trading at a still low 2.7%, Gayed said investors are turning to dividends for steady income.

"There's a clear relationship between bond market movement and demand for dividends, they tend to compete with each other," he said.

Still, Russell predicts that the pullback will be short lived, even for momentum stocks. He believes that weakness in first quarter earnings will most likely be made up for with a strong second quarter.

Related: Momentum strategy: Skip stocks, go for sectors

But in the meantime, dividends are a safe bet.

"The dividend feature is awfully appealing," he said. "It's a nice place to hide for a little while."

As the markets continue a three-day dive, investors are looking for those safe harbors.

  • The 2013 Nasdaq is nothing like 2000

    It's been a banner year for stocks. The Dow and S&P 500 have been in record territory since March, while the Nasdaq has been trading at its highest levels since 2000.

    Though the robust gains have ignited some worries that stocks may be overvalued, most experts believe that a dose of skepticism is actually healthy and predict that stocks will continue to rise next year, albeit at a more MORE

    - Dec 22, 2013 9:00 AM ET
  • Can Amazon deliver groceries too?

    Amazon may have started out as an online bookseller but the Seattle-based company has quickly evolved into the world's largest online retailer. And now Amazon is looking to take over the online grocery business.

    According to a Reuters report, Amazon is "planning a major roll-out of an online grocery business that it has been quietly developing for years."

    Amazon (AMZN) has been experimenting with grocery delivery service AmazonFresh in the Seattle area MORE

    - Jun 5, 2013 1:55 PM ET
  • Why is Best Buy up 60% this year?

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    Best Buy is expected to report a nearly 20% decrease in earnings per share this fiscal year. Sales should drop too. And a takeover by the company's founder now appears to be off the table.

    Yet MORE

    - Mar 7, 2013 10:50 AM ET
    Posted in: , ,
  • Amazon falling out of favor?

    Just days after nearly hitting a new all-time high, shares of Amazon (AMZN) are faltering ahead of its earnings report, due after the bell Tuesday.

    That begs the question: What do investors know that the rest of us don't? Probably not much, but the stock decline may be signaling some jitters.

    Shares were down more than 2% Tuesday.

    It's not too big a stretch for investors to be a little on edge, MORE

    - Jan 29, 2013 11:26 AM ET
  • New Internet bubble? Not so fast

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    Call them the dot-com survivors.

    AOL (AOL), Amazon.com (AMZN), eBay (EBAY), Priceline (PCLN) and Yahoo (YHOO) were all major players at the height of Internet insanity in the late 1990s. They are all still around today MORE

    - Jan 3, 2013 12:46 PM ET
  • Bah humbug! Retailers feel the pinch

    Retailers who were hoping for some holiday cheer have found coal in their stockings this year.

    According to MasterCard's (MA) SpendingPulse report, retail sales leading up to Christmas rose a paltry 0.7% from last year, which wasn't exactly a stellar year for retailers either. And it was far below the 3% to 4% analysts had expected.

    It's been a couple of tough months for retailers, no thanks to Superstorm Sandy. Sales fell MORE

    - Dec 26, 2012 12:26 PM ET
  • eBay: Buy, buy, buy

    More people are hitting the eBay auction block to buy and sell their wares, and they're using PayPal to complete those online transactions.

    EBay (EBAY) reported third-quarter earnings per share that beat Wall Street estimates by a penny and said they have 14% more active users over last year.

    Investors said buy, buy, buy to the stock Thursday, sending its shares up more than 4%. Several Wall Street analysts did too.

    StockTwits MORE

    - Oct 18, 2012 3:00 PM ET
  • Amazon to buy TI's mobile chip business? Skeptics call 'BS'

    Amazon.com is in advanced negotiations to buy the mobile chip business of Texas Instruments, according to Israeli newspaper Calcalist, which would put the online retail giant on the path to becoming a manufacturer of smartphone and tablet processors.

    Shares of Dallas-based TI (TXN) rose nearly 3% following the report, while shares of Amazon (AMZN) declined slightly.

    Amazon's Kindle Fire tablet is currently powered by a TI processing chip, and the company has MORE

    - Oct 15, 2012 12:44 PM ET
  • Whitney Tilson betting on Netflix and Buffett

    Whitney Tilson is doubling down on Netflix (NFLX) and Warren Buffett's Berkshire Hathaway (BRKA).

    Speaking to investors at the Value Investing Congress in New York Monday, the well-known hedge fund manager said Netflix is due for an Amazon-style (AMZN) ride over the next decade. Investors seemed to agree (at least for now), sending shares of Netflix up 3% Monday.

    Tilson said Netflix has shown minimal profits because it's largely reinvested MORE

    - Oct 1, 2012 2:30 PM ET
Fear & Greed
Sponsored by

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day! $SODA up 12%. Today's rumor: $SBUX to buy stake. No more $PEP? Lots of talk since $KO/$GMCR but still no deal.
Powered by WordPress.com VIP.