Vanguard Mid Cap ETF: Cheap Valuations And High Quality (NYSEARCA:VO)


In this world nothing can be said to be certain, except death and taxes. – Benjamin Franklin

The Vanguard Mid Cap ETF (VO), a fund that is focused on mid-cap US stocks, has not been loved in recent years. It has had an impressive Covid-recovery, finally turning positive for the year, but remains below all-time highs made in February. Of course, this is not new for mid-cap investors. In the last three years, despite overwhelmingly positive equity markets and a risk-on sentiment, mid-caps have outperformed large caps, as measured by the Vanguard S&P 500 ETF (VOO). And by a significant amount, with a gain of 47.29% for the latter in the last 3 years to a gain of only 29.38% for the former.

Looking at the holdings of the ETF, the top 10 holdings account for only 8.1% of the portfolio, as much of the company-specific risk has been diversified away. Sector-wise, the holdings are balanced, with the top 3 sectors being Technology (21%) Financials (20.6%), and Industrials (15.3%). That gives a nice balance to the ETF in growth industries and value industries, which lets you hedge out the bet on which strategy will win out over the long term after more than a decade of growth stocks flourishing. Eventually, value investing can return, and you will have exposure to those types of companies with this holding.

Source: Vanguard

Thoughtful Selections

While the Covid crisis has many challenges for the mid-cap space, the portfolio has some excellent picks. For example, Lululemon Athletica Inc (LULU) is in a unique position, as their demand has likely increased with more consumers looking for comfort while working from home, a trend that the athleisurewear company has been excellent at capitalizing on. DexCom Inc. (DXCM) recently smashed earnings expectations in late July, with revenues gaining 34%, and earnings up a whopping 541%. SBA Communications (SBAC) managed to keep their dividend and beat FFO by $0.45, also beating on revenues, in their recent earnings report as more internet was used during the stay at home period. These, among other mid-cap plays, are extremely interesting in the ability to pivot and capitalize in a poor economy and should rebound stronger if the economy can continue its up leg.

Potential Risks

  1. If the economic recession is worse than thought, mid-caps may not have enough resources to weather the storm. Bankruptcies have been happening at an increased rate, especially when you go down the capitalization ladder, and could pose trouble throughout the rest of 2020 and into 2021, especially if government stimulus fails to gain traction in Congress. Many of these companies depend on a strong consumer.
  2. The dividend yield of VO could be under pressure here, especially if there is some movement on the political side to halt buybacks and shareholder payouts. While this remains a far-off risk, it is not implausible, and should be discounted as a risk when investing in these companies. With balance sheets that are inferior to larger-cap companies, there could be more pressure to keep free cash flow for future economic pullbacks and/or business pressure, lowering the dividend yield.
  3. This holding has 357 holdings currently, with a median market cap of $18.9 billion. While you are not going to be worried about diversification, you may suffer the effect of over-diversification with that many holdings. There have been studies done that say the proper amount of holdings for accurate diversification should be around 20-50 holdings only – at 357, the number is much higher.
  4. General market risk remains high after a Federal Reserve (Fed) fueled rally in 2020 off the March lows. If the Fed fails to stoke inflation, or they do not provide enough stimulus, stock markets are at risk of another major pullback. We saw some of this in the price action in early September, when tech stocks spurred a significant decline.

The ETF VO, and its underlying holdings, have shown a great ability to weather a downturn in the recent months. Although valuations remain elevated, at 25.3x P/E, the earnings growth rate of 13.7% should make up for that level over time. This is a great fund to get domestic exposure, as its foreign direct exposure remains 0%, and with a relatively low turnover of 15.2%, you should be comfortable holding this ETF long term.

While highly diversified, there are enough excellent ideas within the portfolio that can push the ETF to new highs, eventually. Whether the overall economy and markets remain in their uptrend is a huge question, but if you are looking for a 10- to 20-year investment, VO fits the bill. The nimbleness of mid-caps should allow them to adjust to the new normal economy, and if there is progress on a vaccine in late 2020 or early 2021, many will flourish.

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Dogs Of The Dow In Mid- August: 4 Primed To Pick


Foreword

While more than half the collection of Dow Industrials is too pricey and reveals only skinny dividends, the ten lowest priced Dogs of the Dow are worth a look. This month four of the ten live up to the ideal of having their annual dividends from a $1K investment exceed the single share price. Several more, show prices within $10 of meeting that goal.

With renewed downside market pressure, it may be possible for (CSCO, CVX, INTC, KO, MRK, & VZ) to join the elite lowest priced high-yield Dow stocks, DOW, XOM, WBA, and PFE (the current four ideal dogs) and so be fair-priced with their annual yield (from $1K invested) meeting or exceeding their single share prices by year’s end.

After the Ides of March dip, and others yet to come, the time to buy the top yield Dow dogs continues to be at hand.

Actionable Conclusions (1-10): Brokers Targeted 13.34% To 25.14% Net Gains From Top Ten Dow Dogs By August 13, 2021

Five of ten top dividend-yielding Dow dogs were verified as also being among the top ten gainers for the coming year based on analyst 1-year target prices. (They are tinted gray in the chart below). So, our August 2020 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 50% accurate.

Estimates based on dividend returns from $1000 invested in the ten highest yielding stocks and their aggregate one year analyst median target prices, as reported by YCharts, created the 2020-21 data points. Note: one-year target prices from single analysts were not applied. Ten probable profit-generating trades projected to August 13, 2021 were:

Source: YCharts.com

Raytheon Technologies Corp (RTX) was projected to net $251.35, based on dividends, plus the median of target prices estimated by twenty analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 25% over the market as a whole.

Exxon Mobil Corp (XOM) was projected to net $224.15, based on dividends, plus the median of target price estimates from twenty-four analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 29 % over the market as a whole.

Intel Corp (INTC) was projected to net $214.72 based on the median of target price estimates from forty-two analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 32% under the market as a whole.

Goldman Sachs Group Inc (GS) was projected to net $195.22, based on the median of target price estimates from twenty-six analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 44% more than the market as a whole.

Chevron Corp (CVX) netted $195.14 based on the median of target price estimates from twenty-four analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 25% greater than the market as a whole.

Cisco Systems Inc (CSCO) was projected to net $191.91, based on the median of target price estimates from twenty-seven analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 3% less than the market as a whole.

Merck & Co Inc (MRK) was projected to net $158.08, based on the median of target estimates from nineteen analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 52% less than the market as a whole.

Pfizer Inc (PFE) was projected to net $146.14, based on dividends, plus the median target price estimates from seventeen analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 36% less than the market as a whole.

JPMorgan Chase & Co (JPM) was forecast to net $144.49, based on a the median of target price estimates from twenty-seven analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 18% above the market as a whole.

Coca-Cola Co (KO) was projected to net $133.40, based on dividends, plus the median of target price estimates from twenty-one analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 45% less than the market as a whole.

The average net gain in dividend and price was estimated at 18.55% on $10k invested as $1k in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility 2% under the market as a whole.

Actionable Conclusion (11): (Bear Alert) Analysts Predicted One Dow Dog To Have A 7.39% Loss to August 13, 2021

The probable losing trade revealed by Y-Charts to 2021 was:

Source: YCharts.com

Apple Inc (AAPL) projected a loss of $73.97 based on dividend and the median of target price estimates from thirty-nine analysts including broker fees. The Beta number showed this estimate subject to risk/volatility 23% greater than the market as a whole.

Source: cnbc.com

The Dividend Dogs Rule

Stocks earned the “dog” moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as “dogs.” More precisely, these are, in fact, best called, “underdogs”.

The August 13, 2020 Dow 30 By Yield

Source: YCharts.com and indexArb.com

Actionable Conclusions (12-21): 10 Top Dow Dividend Stocks By Yield Ranged 3.39% To 8.09% Per YCharts And 3.45% To 8.18% Per IndexArb

Top ten Dow dogs as of 8/13/20 by YCharts and IndexArb represented eight of eleven Morningstar sectors. Both listed the same ten stocks in a single-adjustment order.

Top yielding two energy stocks, Exxon Mobil Corp (XOM) [1] and Chevron Corp (CVX) [3], plus lone basic materials stock, Dow Inc. [2] were the first three of the top ten on both lists.

Fourth place on both the YChart and IndexArb lists went to the top technology firm, International Business Machines Corp (IBM) [4]. Fifth place on both lists was filled by agreement by the top of two healthcare representatives, Walgreens Boots Alliance Inc (WBA)[5]. The second healthcare representative placed seventh on both lists, Pfizer Inc (PFE) [7].The sixth place holder, the communication services representative, Verizon Communications Inc (VZ)[6].

The industrials leader was eighth per YCharts but placed ninth per IndexArb, 3M Co, (MMM) [8][9]. The lone financial services member placed ninth per YCharts, but was eithth per IndexArb, JPMorgan Chase & Co (JPM) [9][8]. Finally, in the tenth slot, was the consumer defensive stalwart, Coca-Cola Co (KO) [10], to complete the August 13 top ten lists of dogs of the Dow by yield.

Source: YCharts.com and indexArb.com

Dividend Vs. Price Results

Graphs above show the relative strengths of the top ten Dow dogs by yield as of market close 8/16/2020. The two sets of charts show the variation of dividends calculated by YCharts.com estimates and those from the arbitrage firm IndexArb.com. While there was a $0.06 difference in estimated dividends between YCharts and IndexArb, that six cent’s worth did not change the percentages.

This month six of the top ten Dow dogs show an overbought condition (in which aggregate single share price of the ten exceeds projected annual dividend from $10k invested as $1k each in those ten). A dividend dogcatcher priority is to select stocks whose dividends from $1K invested exceed their single share price. In the Dow 30 Index, four of top ten now meet that goal: ExxonMobil Corp (XOM); Dow Inc (DOW); Walgreens Boots Alliance Inc (WBA); Pfizer Inc. (PFE) are dogcatcher certified as buys to hold forever this month.

Actionable Conclusion (22): Dow Dogs Still Overbought

The difference in aggregate single share price vs dividend yield for the top ten Dow dogs was insignificant in terms of percentage this month. Price showed as, 61% per both Y Charts and IndexArb, while the dividend derived from $10k invested as $1k in each of the ten was 39% for both.

In most months IndexArb dividend projection is always the higher of the two. In March, April, and May however, the market caught up and passed the Index Arb forecasters for higher yields and lower prices. That happens when a more expensive (Caterpillar) stock on the IndexArb list fills-in for the less expensive (Coca-Cola) stock on the YCharts edition.

This gap between high share price and low dividend per $1k (or oversold condition) means, no matter which chart you read, 26 of these 30 are low risk and low opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend for August 13, 2020 was $21.66 per YCharts or $21.31 in the IndexArb reckoning.

One that cut its dividend in March, Boeing (BA), needs to re-learn and be certified that it knows how to fly and has to get way down before it can get airborne again. BA may be in worse shape than was GE when excused from the Dow index.

Bear in mind that this dogcatcher yield based stock picking strategy is contrarian. That means rooting for (buying) the underdog is productive when you don’t already own these stocks. If you do hold these stocks, then you must look for opportune times to add to your position to best improve your dividend yield.

Price Drops or Dividend Increases of 3% to 52.5% Could Get All Ten Dow Dogs Back to “Fair Price” Rates For Investors

Source: YCharts.com

The charts above retain the current dividend amount and adjust share price to produce a yield (from $1K invested) to equal or exceed the single share price of each stock. As you can see, Exxon, Dow, Walgreens, and Pfizer are at or well-under the goal of closing the gap between share price and dividend from $1k invested.

This illustration shows that five low priced stocks (CVX; VZ; KO; JPM; IBM) need to trim down prices between three and forty-one dollars. Then one behemoth priced stock holds the key to realizing the 50/50 goal for share prices equalling dividend payouts from $10k invested. If 3M, could shed just eighty-nine dollars in share price, the top ten as a group could attain that elusive 50/50 goal.

Source: YCharts.com

Actionable Conclusions: (23-32) Dow Index Showed 10.8% To 23.06% Top Ten Upsides To August 13, 2021; (33) Two Downsides Of -2.97 and -7.25% Were Revealed By Broker 1-Yr. Targets

To quantify top dog rankings, analyst median price target estimates provide a “market sentiment” gauge of upside potential. Added to the simple high-yield “dog” metrics, analyst median price target estimates provided another tool to dig out bargains.

Analysts Forecast A 2.36% Advantage For 5 Highest Yield, Lowest Priced of 10 Dow Dogs As Of August 13, 2021

Ten top Dow dogs were culled by yield for their monthly update. Yield (dividend / price) results as verified by YCharts did the ranking.

Source: YCharts.com

As noted above, top ten Dow dogs selected 8/13/20 revealing the highest dividend yields represented eight of the eleven sectors in Y-Charts and IndexArb reckonings.

Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Ten Highest-Yield Dow Dogs (34) To Deliver 12.43% Vs. (35) 12.15% Net Gains by All Ten Come August 13, 2021

Source: YCharts.com

$5000 invested as $1k in each of the five lowest-priced stocks in the top ten Dow Dividend kennel by yield were predicted by analyst 1-year targets to deliver 2.36% more gain than from $5,000 invested in all ten. The third lowest priced, Exxon Mobil Corp (XOM), was projected to deliver the best net gains of 24.41%.

Source: YCharts.com

The five lowest-priced Dow top-yield dogs for August 13 were: Pfizer (PFE); Walgreens Boots Alliance Inc (WBA); Exxon Mobil (XOM); Dow Inc. (DOW); Coca-Cola Co (KO), with prices ranging from $38.17 to $48.38.

Five higher-priced Dow top-yield dogs for August 13 were: Verizon Communications Inc (VZ); Chevron (CVX); JPMorgan Chase & Co (JPM); International Business Machines (IBM); 3M Co (MMM), whose prices ranged from $58.52 to $165.86.

The distinction between five low-priced dividend dogs and the general field of ten reflected Michael B. O’Higgins’ “basic method” for beating the Dow. The scale of projected gains based on analyst targets added a unique element of “market sentiment” gauging upside potential. It provided a here-and-now equivalent of waiting a year to find out what might happen in the market.

Caution is advised, since analysts are historically only 20% to 80% accurate on the direction of change and just 0% to 20% accurate on the degree of change. (In 2017 the market somewhat followed analyst sentiment. In 2018 analysts estimates were contrarian indicators of market performance, and they continued to be contrary for the first two quarters of 2019 but switched to conforming for the last two quarters.) In 2020 analyst projections so far have been quite contrarian.

Afterword

Lest there be any doubt about the recommendations in this article, below is the list of four August 13 stocks showing dividends for $1k invested exceeding their single share prices:

Exxon, Dow, Walgreens, and Pfizer are at or well-under the goal of closing the gap between share price and dividend from $1k invested.

The dogcatcher hands off recommendation refers to one that cut its dividend in March, Boeing (BA), needs to re-learn (and be certified) how to fly and has to get way down before it can get airborne again. BA may be in worse shape than was GE when booted off the Dow index.

The net gain/loss estimates above did not factor in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of “dividends” from any investment.

Stocks listed above were suggested only as possible reference points for your Dow dividend dog stock purchase or sale research process. These were not recommendations.

Disclaimer: This article is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from Indexarb; YCharts; finance.yahoo.com; analyst mean target price by YCharts. Dogs photo: cnbc.com

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Disclosure: I am/we are long CSCO, INTC, PFE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Wynn Resorts CEO calls for Las Vegas Strip to conditionally reopen in mid- to late May By Reuters


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© Reuters. Logos are displayed at Wynn Macau resort in Macau

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By Helen Coster

(Reuters) – Wynn Resorts (NASDAQ:) Chief Executive Officer Matt Maddox on Sunday called on the Nevada governor to begin to reopen the Las Vegas Strip in mid- to late May with extensive safety measures in place, assuming the state is in line with certain benchmarks around the spread of the coronavirus.

In an opinion column https://thenevadaindependent.com/article/a-plan-to-re-open-nevada published on the Nevada Independent news website, Maddox said Governor Steve Sisolak should reopen parts of the local economy in early May.

“Begin with reduced occupancy, physical distancing measures in place, temperature checks and no large gatherings,” Maddox wrote. “We all need to wear a mask.”

He also laid out Wynn’s health and safety guidelines for reopening, which include allowing a maximum of four people to ride in an elevator at one time; and requiring guests to enter the resort through doors that are either propped open, are automated or manually operated by an employee.

Sisolak ordered all casinos and other nonessential businesses in the state to close for 30 days beginning March 18. He extended that order until April 30, and last week said he has no specific date for when nonessential businesses might be allowed to reopen.

The United States has by far the world’s largest number of confirmed coronavirus cases, with more than 730,000 infections and over 39,600 deaths, according to a Reuters tally. In Nevada, there have been at least 3,725 people confirmed to have the coronavirus and 155 deaths.

Wynn Resorts – which owns and operates the Wynn Las Vegas, the Encore Boston Harbor, the Wynn Macau and the Wynn Palace, Cotai – closed its U.S. properties on March 15 and 17.

Wynn’s Macau casinos reopened on Feb. 20 after a mandatory, industry-wide two-week closure. It and other casinos resumed operations with government-mandated restrictions that include temperature checks, fewer open tables on the casino floor, and rules against guests standing or congregating.

While the coronavirus epidemic in China has been momentarily halted, in the United States it is spreading from cities to suburbs and rural areas.

U.S. President Donald Trump, who has been pushing to end state-mandated stay-at-home orders, last week laid out federal government guidelines for states to reopen their economies in a staggered, three-stage approach.

Health experts have warned that to avoid a second wave of infections once people resume activity, extensive testing must be available to track infections, as well as contact tracing and antibody testing.

Wynn is paying all salaried, part-time and hourly North American employees through May 15, which is costing the company approximately $3 million per day or $180 million for two months, according to Maddox.

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