Tuesday, December 21, 2004
Click on Picture to Enlarge
I have been finding a lot of attractive British stocks lately. They seem to have compelling stories and very good dividend yields. Here is some of what I mean.
Allied Domecq (AED): Among other things owns Dunkin Donuts and Baskin Robbins yields 2.3%
Barclays Bank (BCS): Owns the iShares business yields 2.7%
BT Group (BT): Big phone company yields 3.6%
Glaxo (GSK): One of the drug companies that hasn't been hurt yields 3.1%
Lloyds TSB (LYG): Smallish bank with good valuations yields 7%
National Grid (NGG): Utility yields 3.4%
Pearson (PSO): Media company yields 2.9%
There are more names but you get the idea. The problem lies in the chart I pasted above. The British yield curve is inverted. This means a recession is coming. The yield curve has been inverted for a short while but the stock market has not started to roll over yet. I own two British names for clients. One name is a consumer staples name that yields 4% at current prices. I expect I will sell this stock in the next couple of months. The other name I own is British Petroleum. I expect what is going on with oil to trump problems with England's economy so I think I will keep that one.
I suppose this time could be different but the biggest problem, I think anyway, is that it is very difficult to access capital when the curve is upside down. This stifles the economy. This is not the type of thing I want to try to out smart. Too bad because a lot of the names I've listed are compelling but top down starts with the big picture which says avoid or be underweight England.
Posted by Roger Nusbaum at 2:17 PM