If there is an asset class that is now unloved, surely it has to be the large-cap U.S. blue chips like General Electric (GE), Johnson and Johnson (JNJ) and Wal-Mart (WMT). BusinessWeek magazine even did a cover story posing the question: “How long will the stocks of America’s largest companies remain weaklings on Wall Street?”
As an investor who is over-weight in the bluest of the blue chips (I own shares in Altria Group (MO), Anheuser-Busch (BUD), Home Depot (HD), General Electric (GE), AIG (AIG) and Pfizer (PFE)), you would think that such a cover story would keep me sleepless at nights. On the contrary, one of the lessons of the crash in technology stocks, is that there is very little money to be made buying the same thing that everyone else is buying. To paraphrase Warren Buffett, an investor should try to buy stocks that will be priced like flowers tomorrow but are priced as weeds today.
My thesis for the overweight position in the blue chips is very simple: many of these stocks are trading at the low end of their historical valuation and in many instances are trading at lower valuations than the market as a whole. If this magazine covers turns out to be another contrarian indicator, maybe it is time for the blue chips to outperform other asset classes.