The title of this post may be a bit misleading. I am not predicting a major decline in the stock market as a whole nor do I think that all equities are overpriced. I believe that the outcome of the presidential election will have little bearing on the price of equities as well. The primary reason that I believe long term investors should look at selling a few equities is to take some profits. Long term investors should see some profits in their portfolios since the market crash of Fall 2008 to the spring of 2009. Many companies have risen dramatically in value. Even slow movers like Bank of America (BAC), General Electric (GE), Ford (F), and Exxon Mobil (XOM) have made money for patient investors. I think that investors who want to avoid being burned by any dip should book some profits while the Dow is still riding high. This does not mean that investors should liquidate all of their positions. There are still some sectors that look attractive (particularly the oil sector).
Investors can get some great dividends from owning companies like BP (BP) which is yielding 4.8%. That beats anything that you will get from the bond market or a savings account. Total SA (TOT) looks cheap as well and the 5.8% yield is a real eye grabber. Conoco Phillips is not the high yielder that the other two companies are but a 4.7% yield is pretty darn attractive. Exxon is not a buy until the yield goes back to 3%.
Infrastructure plays like Brookfield Infrastructure Partners (BIP) are a good bet as well with its 4.5% yield. REIT’s are not looking as good because of the low payouts. Former high yielders Brookfield Asset Management and SImon Property Group (SPG) are not the bargains that they were just a few years ago. Infrastructure stocks have become the new REIT’s with their high yields and low valuations.
I would be leery of holding expensive stocks (high P/E) with no dividend payout who have seen their share prices outpace their earnings growth. For example, I would be looking to sell a Chipotle Mexican Grill (CMG), who has seen its P/E ratio more than double its projected earnings growth. That is a company poised for a price drop if sales growth does not outpace the lofty expectations set by Wall Street. Chipotle is a great company but the stock looks too pricey.