10 Stingy Stocks For 2023

The U.S. stock market ran headlong into rising interest rates this summer and keeled over into a bear market. The problem is bear markets have a habit of lingering for many months, and the central banks don’t appear to be finished hiking rates. The short-term outlook is grim.

But a good deal of pain is already priced into many stocks, and bargains are becoming plentiful. Value stocks are trading at discounts that haven’t been seen since near the turn of the century, which also happens to be just before they started a phenomenal run in the early 2000s. With a little luck, history will repeat itself.

That’s why I’m pleased to present the new crop of Stingy Stocks for the year in what has become an annual tradition for more than two decades. But, before looking at this year’s value stocks and how they’re selected, it’s useful to review the scorecard to see how the portfolio has done so far.

In a spot of good news, the Stingy Stocks outperformed the market since my last update. Mind you, that’s not saying much because both lost money. The Stingy Stocks fell 13.8% since last time, while the S&P 500, as represented by the SPDR S&P 500 (SPY) Exchange-Traded Funds (ETF), plummeted 15.7%.

In better news, the long-term gains are much more encouraging. The Stingy Stocks portfolio climbed by an average of 12.1% per year since the portfolio began at the end of 2001. By way of comparison, the SPY ETF trailed the Stingy Stocks by an average of 4.4 percentage points annually over the same period with average annual gains of 7.7%.

To put that into perspective, if you had split $100,000 equally among the original Stingy Stocks at the end of 2001 and moved into the new stocks each year, your portfolio would now be worth about $1,073,000. An investment in the index ETF would be worth about $467,000, which is less than half as much. (The returns herein are expressed in U.S. dollars and do not include taxes, commissions, or other trading frictions. They do include dividends, which are reinvested roughly annually when each year’s stocks are selected.)

The Stingy Stocks strategy picks good value stocks from within the group of 500 large companies that comprise the S&P 500 Index because big firms tend to be more stable than the smaller fry.

It then proceeds cautiously by sticking to firms that have at least some earnings and some cash flows over the last year. After all, a business is less likely to go bust when it is profitable and has some cash coming in the door.

It finally focuses on the top ten bargains with price-to-sales ratios of less than one while favouring those with modest price-to-earnings ratios. (I’ve also added a few more subtle touches along the way.)

The ten Stingy Stocks for the year are: AT&T (T), Dow (DOW), Eastman Chemical (EMN), Ford Motor (F), HP Enterprise (HPE), LyondellBasell (LYB), Marathon Petroleum (MPC), Nucor (NUE), Phillips 66 (PSX), and Valero Energy (VLO) (For what it’s worth, I’ve owned AT&T, HP Enterprise, and Phillips 66 since well before the formation of this year’s list on September 23, 2022.)

The portfolio sports an average price-to-sales ratio of 0.4, an average price-to-earnings ratio of 5.0, and an average dividend yield of 4.6%. All the stocks in the portfolio have price-to-earnings ratios of less than 8, based on earnings over the last 12 months. They also have price-to-forward-earnings ratios of less than 9, based on analyst earnings estimates for the next 12 months. Statistically speaking, they’re cheap.

The portfolio is also stuffed full of stocks with generous dividend yields. For instance, AT&T pays a 6.9% yield, while LyondellBasell pays 6.5%, and DOW offers 6.4%.

I’ve high hopes that this year’s Stingy Stocks will do well, but as the last year has shown, investors should expect ups and downs along the way. Simply put, there are no guarantees when it comes to the market.

As always, before buying any stock, do your own due diligence. Read the latest press releases and regulatory filings. Scan news stories for any important developments and make sure it’s a good fit for your portfolio. With a little luck, the Stingy Stocks will provide some comfort in these difficult times.

Norman Rothery, PhD, CFA, Founder of StingyInvestor.com, Toronto, ON (416) 243-9580, rothery@stingyinvestor.com, www.stingyinvestor.com