Widely watched inflation indicators have proved to be more persistent than initially thought, making the argument from the FED chairman, Jerome Powell, a shrug from the past year. Inflation has been indeed not 'transitory,' and as a result, bond markets are reflecting this new 'higher for longer' norm.
The United States government's ten-year bond yield is now hovering around the 4.8% mark, driving investors into several corners of the market to find a more competitive yield environment. Letting everyone else worry solely about yield, you can get a leg up and diversify into growth and upside.
How can you go about achieving this? Well, it is no secret that the most outstanding value investors of the century can bring their names to the top of high finance by finding deals that fit one primary metric: tails, you win big, heads, lose slight, or break even.
RE/MAX
Measuring the vital signs from the universe of real estate stocks, it becomes evident that the party ended a while ago. Only the echoes of the booming house market of 2021-2022 remain to bring those nostalgic memories.
Grim enough? Good, while everyone else weeps over memories past, you can focus on filling your next RSVP. RE/MAX (NYSE: RMAX) is one of the stocks in this small universe that has already priced in any 'worst case' scenario in real estate's slowing, leaving nothing but upside from today's prices.
Trading at the lowest prices in over a decade, this stock is telling investors that it has priced in the possibility of a recession, which could be even more significant than the financial crisis of 2008.
Chances of these scenarios coming true, while still present, are slim, and what's more, they are insured away by the cheapness of this stock. Want to know who else is spotting this almost 'unfair' upside potential? Wall Street.
Analysts have come together to provide a consensus price target of $21.5 a share for this stock, implying a net 75.5% upside from today's prices if these valuations prove correct.
Another surefire way to tell whether this stock is (historically) cheap is its valuation multiples. On a price-to-book basis, the stock is even more affordable than during COVID-19 peak times, when nobody could transact in real estate even if they wanted to.
Are you now tempted only to think of the potential upside? Get this: you will also be paid a 7.5% dividend yield if you decide this stock is a worthy addition to your watchlist.
Despite what the stock price may imply, the dividend is still safe according to the company's financials. On a twelve-month basis, free cash flow generated was $27.8 million, while dividend payments amounted to $16.8 million.
Using 60% of funds to pay dividends may be tight, but remember, RE/MAX is at the bottom of the cycle.
Mohawk Industries
Suppose RE/MAX has slowed ahead of a potential recession, being the front-runner to real estate demand and supply activity. What do you think comes next? Someone buys a house and invites their friends and family to show them, but it's empty...
Queue in Mohawk Industries (NYSE: MHK) to provide the furniture and other decor necessary to impress guests, though if there are no new homes sold - or expected to be sold - then, of course, it makes sense why this stock has hit a fresh 52-week low.
While not as bullish on this one as they were on RE/MAX, analysts still see a net upside of roughly 41% from today's prices. The logic lies in furniture being second-tier to feel the benefits of the industry pick up. Nonetheless, this represents one of those 'low risk, high reward' packages.
Comparing the unreasonable discounts seen in RE/MAX, Mohawk's P/B multiples will reflect similar levels to those seen during the initial troughs of 2008. This airbag may not be as giant as the previous one, but it is still pretty safe unless you genuinely believe the doom-and-gloom out there.
On a net price basis, the stock chart will reflect similar prices to those seen during the peak-case season of COVID-19. Today, the number of active cases and the disease are almost irrelevant. Yet, the stock is acting as if another global health crisis were happening.
Whirlpool
In the spirit of saving the last spot for - probably - the most stable play in this book, Whirlpool (NYSE: WHR) enters the list to provide you a balance of low beta and high yield in a brand name that is not only growing tons, but it also won't disappoint even if a recession comes around.
With not much to say, the company's attributes shine for themselves. You can lock in an inflation-beating dividend yield of approximately 5.5% while considering this deal near its 52-week low prices.
What's more important to note, in the business fundamentals, is that when the underlying real estate wave inevitably picks up (whether recession or not), each home will need a set of appliances from one of America's favorite brands.
There must be a reason why BlackRock (NYSE: BLK), the company's largest shareholder, increased its stake by 2.3% during the last quarter. Smart money has been making alpha-positive moves lately, and you can easily piggyback during these volatile times.
