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Do Boring Stocks Make for Better Buys?


Do Boring Stocks Make for Better Buys?

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According to a recent MarketWatch report, banks and utilities are actually better stock buys than software and pharmaceuticals. Software and pharmaceutical stocks have always been the darling of Wall Street. These stocks tend to appreciate fairly quickly. There is a lot of buzz and hype regarding these companies.

However, if you are looking for long-term value, in terms of market-to-book ratio, as well as dividend yield, you would be better off investing in bank and utilities stocks. These stocks are not sexy. Unless you are talking about a global investment bank stock, like JPMorgan Chase or Goldman Sachs, most bank stocks seem pretty generic. If you think that is bad, utilities are twice as boring.
Regardless, if you are looking to grow value over time, you only need to look at their average dividend yield. While software companies have an average dividend yield of .97%, utilities come in at a whopping 3.2%. Again, this is average dividend yield. There are companies that issue dividends much higher than this.
Another key factor to consider is market-to-book ratio. This is the value that the market places on the stock, compared to its actual book value. At a 6.6 ratio, pharmaceuticals are much more expensive than banks, which clock in at a 1.1 ratio. If you plan to use this strategy, you need to be very careful. Just because a group of stocks, as a whole, have these different dividend yields and market-to-book ratio, you can’t rely on stocks membership in a group to guide you.
Instead, you need to evaluate stocks on an individual and case-by-case basis. Look for market leadership. Look for low debt ratios. Also, look for potential future growth. Boring doesn’t have to suck-as far as your portfolio’s bottom line is concerned.

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