As we grind on into the second half of the year, the gloomy headlines about inflation and a bear market seem to be getting darker. There’s now talk of the housing market cooling off, and in some corners even chatter about a potential recession.
But if you’re a serious investor instead of a day trader with a short attention span, there’s no reason for you to freak out and hide in a bunker. True investing success depends on looking beyond short-term cycles, and instead focus on long-term income.
I’m not saying that makes it easy. It’s always a challenge to find reliable investments, and even more so in this environment.
But it’s not impossible. And I’ll show you how you, too, can zero in on low-risk, long-term income plays that will withstand the test of time with a case study in my latest buy recommendation: automaker Stellantis (STLA), which delivers more than 5X the yield of the typical stock in the S&P 500 index at present.
MVP – Management, Valuation, Payouts
First, let me tell you a little bit about my investing philosophy. I tend to focus on stocks that exhibit three key factors that align with long-term success:
- Management strategy: Though I’m largely after income investments, I gravitate towards companies that simply make sense. If the underlying strategy of a business doesn’t fit with market conditions, I don’t bother to even crunch the numbers.
- A fair valuation: Just because the strategy is sound doesn’t mean I’ll chase the stock to the moon. Particularly in the last year or so, investors have learned the peril of putting a limitless premium on future growth – and getting a fair entry to a stock is always important in achieving consistent returns.
- Generous dividend payouts: If you can get a nearly risk-free return of about 3% in short-term bond funds right now, why would you bother with anything that doesn’t at least match that payout? Generous dividend payers not only provide a hedge against decline, but they deliver a regular “paycheck” you can live off in retirement– which is the goal for all of us.
This MVP strategy is the key to finding stocks that deliver. And right now, automaker Stellantis – the parent company of Jeep, Dodge, Chrysler, and other nameplates – is a great example of this trifecta of priorities.
Let’s go through them one by one…
The Case for Stellantis
Strategically, there’s a lot to like about the newly-merged auto giant that was formed in 2021 via a 50-50 merger Fiat Chrysler Automobiles and the French PSA Group that owns Peugeot, Citroën and other European brands.
Fans of automotive history will remember nameplates like Packard, Studebaker and Hudson that didn’t survive the early days of the automotive boom across the 1950s and 1960s. And now that we are in the midst of an electric vehicle revolution that will reshape the industry yet again, the reality is that many legacy brands are about to disappear in the next wave of industry disruption.
The EV-heavy strategy of this combined company along with a commitment to consolidate operations and gain efficiencies is spot on – and with a few lucrative legacy brands like its booming U.S. Ram pickup and Jeep SUV businesses to keep the lights on in the short term, Stellantis has ample resources to navigate this transition.
Remember, this is a “merger of equals” between companies who know the business and who want to survive, not a bloated debt-heavy private equity buyout
Now for the numbers: Stellantis has a rock-bottom price-to-earnings ratio of less than 3 right now – a simply ridiculous figure, and proof it has been deeply discounted. It’s also trading for only about 40% of this year’s projected revenue, another sign that this stock is a big bargain right now.
Throw in a yield of about 8.8% as of this writing, which is highly sustainable at just 25% or so of projected earnings, and you have to be incredibly pessimistic about both this company and the auto industry generally to pass up STLA stock.
To be clear, there are risks of the EV transition and a short-term downturn in the economy. There are also specific challenges with right-sizing operations after the merger and adapting to the chronic supply chain issues that persist for many manufacturers.
And last not not least, as an overseas dividend payer you need to know that the payouts come on an annual and irregular cycle instead of the steady and fixed quarterly payouts you’ll get from the typical domestic blue chip. But as you can see, the dividend is actually recovering and rising in the wake of the pandemic (based on pre-merger data).
The core investment thesis here is more than enough to overshadow any uncertainty, and the deep discount for shares proves how low expectations already are. The rock-bottom valuation indicates Wall Street has aggressively discounted this stock beyond what’s logical, providing a buying opportunity for long-term income investors who can look beyond any short-term challenges.
Get the Consistent Income You Require – In Any Market
To the armchair investor who loves tech IPOs or cryptocurrencies, a boring multinational automaker like Stellantis is a non-starter. But this is a nearly $40 billion company that’s not going anywhere, and offers a boring but reliable way for you to build your wealth.
And besides, after the gut-wrenching declines of 2022… isn’t a little bit of boring a good thing for your portfolio?
Here at Contrarian Outlook, we don’t chase fads. We focus on quality investments that prove themselves with hard facts and real numbers.
We’re always on the hunt for MVPs. And right now, with a market in transition, it’s more important than ever to stay on top of developments to identify the biggest opportunities and steer clear of the biggest risks.
In fact, we’ve just updated our latest Special Investor Report with seven top income investments that are poised to return 15%+ annually even in this challenging market – and keep delivering those kinds of profits for decades to come.