Dow Inc. Offers Safety in Uncertain Times
As unbelievable as it may sound, the S&P 500 is coming off its best first-half performance since 1997.
As you read this, the S&P 500 is trading a hair under a historic value of 3,000 – while being valued at 18 times projected 2019 operating earnings.
That’s about 16% higher than its historical average. As I’ve mentioned in The War Room, the S&P is now trading at a higher level than it was when it triggered the 10% sell-off in October 2018.
I’m not saying that the melt-up of 2019 will come to a screeching halt. I am, however, suggesting that these levels are something we all must be aware of. Why? Because if you look closely, you’ll notice that some key economic figures are getting weaker.
For instance, the Institute for Supply Management’s (ISM) Manufacturing Index fell to 51.7 in June, its lowest reading since October 2016.
As a general rule, an ISM reading above 50 means economic activity is increasing. However, it’s also important to realize that its rate of increase is slowing dramatically compared with 2017 and 2018. That’s certainly a warning sign to keep in mind.
Also, we’ve now entered a market where bad is good… and good is bad.
For instance, an unexpectedly strong jobs report number last Friday triggered a sell-off. The market believes the strong economic news may make the Fed less likely to cut its target interest rate in July. The market has largely priced in such a cut, so the news sparked selling pressure.
Two weeks prior to this, a weak jobs report number triggered a market rally – as poor economic news further strengthens the Fed’s rationale for a July rate cut.
Either way, it’s never healthy to operate in a “good is bad“ environment. But clearly, that’s the environment we’re in right now.
So a company like Dow Inc. (NYSE: DOW) should be front and center on your “safe haven” buy list.
This blue chip materials and chemicals conglomerate is segmented into Performance Materials & Coatings, Industrial Intermediates & Infrastructure, and Packaging & Specialty Plastics. The companies in Dow’s holdings produce everything from the paint used for traffic markings to the skin, sun, and hairstyling products you most likely used this past Fourth of July holiday.
But here’s what I like the most…
Right now, Dow ranks as the top-paying dividend stock of the entire S&P 500. Its 5.68% yield ranks better than the Gap’s 5.2% and Kraft Heinz’s 5.17%. Plus, Dow is trading at a low valuation – unlike most of the company’s market peers.
Action Plan: In The War Room, we’re using Dow Inc. as a way to own cheap upside exposure. Even if we do see a sell-off, this could be where money flows as a “safe haven” dividend play in a time of uncertainty. It’s the top name that could benefit from a rush to quality on any coming threat of weakness.