Finding the Value in Crap

It’s been a while since I have opined on the stock market.  Mostly because I have had other more important things to say.  Nevertheless, I still pay attention, and I think you should, too.  

Recently, Morningstar rated 20 stocks as “Undervalued and Sustainable,” which appeals to me because I hate overpaying for things, and want whatever I buy to be around in a decade or so - since I plan on that, too.

I went over the list (as you should, too) and found five that appear to be attractive in today's environment, and have some risk involved, with the requisite reward at the end of the supposed rainbow.

Mattel (MAT) looks like a disaster now, but their capital-allocation program has committed an incremental $250 million-$300 million to business improvements in 2017, potentially helping speed up the profit turnaround. So, if you are confident in their ability to turn the existing portfolio into a profitable enterprise, you could find a bargain here.  

HanesBrands (HBI). They aren't in the strict retail environment that is killing the likes of Macy's and Nordstrom.  Instead, they are selling products to them, and without a pure retail outlet, they may be able to make it work.  Free cash flow is still positive, and the company is buying back shares, which is a confident approach, and should attribute to earnings going forward.  Besides, who doesn't need underwear?

CapitalOne Financial (COF) This is a bit of a personal preference, since they are my bank and my credit card company.  While other companies like Visa (V) and MasterCard (MAS) have skyrocketed, CapitalOne has been left in the dust.  There is still value here. They continue to acquire assets, and our beloved Millennials continue to embrace debt and credit cards in particular, and Capital One is one of the underrated leaders in this space.

Starbucks (SBUX) Oh God, is it Starbucks?  I realize it's a retailer, and all, but despite ambitious growth aspirations, Morningstar believes Starbucks can sustain a 45%-50% dividend payout ratio over the next decade , implying mid-teens average annual dividend growth. It's hard to argue with that.

Kroger (KR) There's just something about this company that appeals to me.  I can't imagine that Amazon (AMZN) is going to kill retail altogether, so I figure that one or more has to sustain - and I think Kroger will be one of them.  If you're going to hold me responsible for any of these choices, then hold me responsible for Kroger, because I believe in the company and think that they will survive the onslaught of Amazon and the E-commerce of the 21st Century.

if you are a young investor, or have a young investor in mind, you could do worse than any of these five, or some others on the Morningstar list.  Take a look at all of them, but - in my opinion - for what that's worth, your money is best spent in these areas.

As usual, do your due diligence.