Saturday, February 13, 2010

The Value Is In Quality

For the period between the March low in 2009 and year end 2009, low quality stocks drove the market's move higher last year. The better return that was achieved in the lower quality equity assets in 2009 versus 2208 also occurred in other asset classes as detailed below.
Riskier Assets Outperform

With respect to stocks at this point in time, “If you go farther down on the quality scale, you are not getting a valuation discount,” said Cathy Seifert, head of financial services equity analysis at S&P. As noted in a number of my earlier blog posts, S&P's Quality Ranking measure looks at the growth and stability of a company's earnings and dividends over the prior 10-year period. S&P's research has noted that companies with above average quality rankings tend to outperform over the long run.

"S&P believes that high-quality stocks offer both increased safety of principal and potentially higher long-term returns versus low-quality issues,” says Richard Tortoriello, an S&P equity analyst. “We believe the recent market pull-back offers investors an opportunity to participate in a cyclical bull market. We would favor high-quality issues at this point."

A partial list of the stocks that carry S&P's 4 or 5 STAR rating and also have a buy rating by an S&P analyst is detailed below.

Readers should assume I have a long interest in each company on the above list and/or may be selling an investment in one or more of the above companies at anytime.

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