Leave it to our representatives in Washington to make a compromise that ignores most of their previously stated beliefs -- of only a few days ago. This just reinforces again the old joke "How do you know when a politician is lying?..."
Monday the Obama administration and congressional Republicans came to an agreement to extend both unemployment benefits by 13 months, and the Bush-era tax cuts for all by two years. What happened to the Republican and Democratic noise about fiscal responsibility and reducing the debt?
A few days ago Republicans were not going to vote for an extension of the unemployment funding if there was not an associated revenue offset to pay for it. That's gone, so the deficit is going up. The Democrats claimed they would not back an extension of the tax cuts for people that earned over $200,000 for individuals and $250,000 for joint returns claiming this would add $900 billion toward debt reduction. That's gone so the deficit is going up.
Why did this happen? It happened because the weasels in Washington all decided as they usually do that their constituencies would be happier getting something instead of reducing the deficit. All the deficit reduction talk that ever goes on is about cutting somebody else's interests. The only way to reach agreement is to convene a conference where each party is required to show up with cuts they would make that affect themselves and make sure everyone shares the pain.
So now its done and I will leave the rest of the venting to our readership in their comments. All we can do about it at BloggingStocks is give some thought to what investments might be advantaged.
Since nobody is really getting a windfall from the deficit spending I would stick with staples, and to me that means food and energy. In the food arena Archer-Daniels-Midland (ADM) and Deere and Company (DE) the farming equipment manufacturer come to mind. In the energy sector almost all of the oil companies have something to offer but the most conservative bet is still Exxon Mobil Corporation (XOM). These three companies represent the giants in each sector.
All three companies pay a dividend: ADM is paying 1.98%, DE is paying 1.49% and XOM is currently yielding 2.42%.
All three have below average PEG ratios: ADM is 1.24, DE is 1.34 and XOM is 0.96.
All three have very low P/S ratios: ADM 0.29, DE 0.99 and XOM 1.20.
Of the three companies ExxonMobile has by far the strongest balance sheet with very little debt and double digit ROE, ROA, and ROIC. ADM has only modest debt but the company is not achieving the same margins as XOM. Deere's debt level is high as the company is seeing demand for it's equipment improve dramatically year over year and quarter over quarter, 35% Growth Sets Record for Deere Quarterly Revenue so I believe they are borrowing to increase capacity
These are not companies I expect to outperform the universe of individual stocks, but I do expect them to stay ahead of the market with a lot less volatility. These are also the types of stocks that might be a good fit for investors that have been afraid to get back into the market and would like to dip their toe in.
Sheldon Liber is registered architect and the CEO of Chasing Value™ Asset Management, Inc. running a small private investment company. He writes the columns Chasing Value™ and Serious Money. Disclosure: He does not currently owns shares of the stocks mentioned.