Summary
- Today's stock market refuses to rally or crash, frustrating both bulls and bears.
- While the S&P 500 is at 17X forward earnings, historically fairly valued, anti-bubble blue-chip bargains are plentiful if you know where to look.
- FedEx is a boring but beautiful business trading at a 42% discount, just 7.6X cash-adjusted earnings but growing at 14%. It could almost double by 2024 and potentially quadruple in five years.
- ManpowerGroup is one of the best anti-bubble blue-chips you've never heard of, also priced at 7.6X cash-adjusted earnings, and it could potentially triple in five years.
- Both FDX and MAN are priced for negative growth but are actually fast-growing dividend blue-chips that are paying you to wait out this bear market. Their combination of safety, quality, growth, and incredible value could be just what you need to feel like a stock market genius in 5+ years, after the bear market is over.
Many investors are frustrated, and not necessarily because we're in a bear market. Blue-chip bargain hunters of the Buffett school are yearning to "be greedy when others are fearful."
Today bulls are frustrated that stocks aren't going up, and bargain hunters are frustrated that stocks aren't going down.
The S&P 500's forward PE of 17, its historical average, is a perfect example of this. Stocks are neither expensive nor cheap just fairly valued.
The returns from here are likely to be good but not great. But never forget that it's a market of stocks, not a stock market. Something great is always on sale, and in a bear market there are even lots of anti-bubble blue-chip bargains to be found, if you know where to look.
What's an anti-bubble stock?
Bubble stocks are companies priced as if nothing will ever go wrong again. Anti-bubble companies are priced as if nothing will ever go right again.
According to Ben Graham, a company growing at zero forever, assuming a stable business and no net debt, is worth about 8.5X earnings. This is the valuation at which investors will earn a good return if the company uses its cash flow to pay out dividends.
- approximately a 12% long-term annual return for such companies
Anti-bubble companies are trading at less than 8.5X cash-adjusted earnings, literally priced for negative growth forever.
What is so attractive about anti-bubble blue-chips? Assuming you avoid becoming a forced seller for emotional or financial reasons, it's mathematically impossible to lose money in the long-term as long as the company grows 0% or faster.
This is the classic Buffett-style "fat pitch" that can help you generate good income today, and potentially retire in safety and splendor tomorrow.
Today I wanted to share with you two anti-bubble dividend blue-chip bargains, ManpowerGroup ( MAN ) and FedEx ( FDX ).
There is nothing sexy about these businesses... except for the incredible potential returns you can earn while collecting attractive dividends.
FedEx: Secular Trends Create A Decades-Long Growth Runway
Further Reading
Overnight delivery pioneer FedEx is one of three large national carriers that dominate the for-hire small-parcel delivery landscape—FedEx and UPS are the major U.S. incumbents, while DHL Express leads Europe. FedEx is also the largest U.S. less-than-truckload carrier, which helps forge sticky relationships with retail and industrial shippers on the package side. Rival UPS has been around much longer in the U.S. ground market, forging a density advantage and higher margins. Still, FedEx has gradually enhanced its ground positioning over the past decade, with help from its speed advantage over UPS and capacity investment." - Morningstar
The investment thesis for FedEx is simple. It's a global powerhouse in ground delivery, and as the world economy grows and digital retail sales grow with it, FDX will have a lot more business.
FDX Investor Presentation
FDX management believes it can achieve 10% to 15% growth over time, and analysts currently expect 14.2% long-term returns.
The 2.2% yield might not sound exciting today, but combined with 10% to 15% growth, that's a 12.2% to 17.2% long-term return potential.
- Analysts think FDX will outperform the S&P, aristocrats, and Nasdaq in the long-term
But what if you're unsure about FDX growing at double-digits? What if you're worried that Amazon's ( AMZN ) delivery business will significantly cut into FDX's growth? Well then, you'll love FDX's valuation.
- 7.6X cash-adjusted earnings
- priced for -1.8% CAGR growth forever
- if FDX grows at zero forever, you'll earn 13% annual returns
Can FDX grow at 10% to 15% in the future? Its 20-year growth rate is 11.4%, and it has a skilled management team and $10.4 billion in liquidity thanks to a stable BBB credit rating.
I believe that FDX can and will grow at management's target rate and can thus make you a lot of money. How much money?
FedEx 2024 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
If FedEx grows as expected through 2024 and returns to market-determined historical fair value, it could deliver a 92% total return or Buffett-like 45% annually.
- 3X more than the S&P 500
FedEx 2028 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
Want to quadruple your money in six years? That's what analysts think FedEx could do from today's anti-bubble valuation.
Now compare that to the S&P 500.
S&P 500 2024 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
Analysts expect stocks to deliver solid 13% annual returns over the next few years.
S&P 500 2027 Consensus Total Return Potential
Year | Upside Potential By End of That Year | Consensus CAGR Return Potential By End of That Year | Probability-Weighted Return (Annualized) | Inflation And Risk-Adjusted Expected Returns |
2027 | 51.30% | 8.64% | 6.48% | 4.05% |
(Source: DK S&P 500 Valuation & Total Return Tool)
But just 51% returns over the next five years, about 9% per year.
- FedEx has 6X the return potential of the S&P 500 over the next six years
FedEx Investment Decision Score
DK (Source: Dividend Kings Automated Investment Decision Tool)
FDX is a reasonable and prudent fast-growing anti-bubble blue-chip option for anyone comfortable with its risk profile. Look how it compares to the S&P 500.
- 42% discount vs. 0% market premium = 42% better valuation
- 2.2% yield vs. 1.6% yield
- 60% better consensus long-term return potential
- 3X better risk-adjusted expected return over the next five years
- 20% higher consensus income over the next five years
ManpowerGroup: One Of The Best Anti-Bubble Blue-Chip Bargains You've Never Heard Of
Further Reading:
What ManpowerGroup Does
ManpowerGroup is one of the largest firms in the fragmented global staffing industry. It serves each main staffing category--temporary, permanent, and project-based--and offers a suite of human resources outsourcing and outplacement services. Manpower generates annual revenue and operating income of more than $20 billion and nearly $600 million, respectively. A vast majority of sales are generated outside the U.S. from operations in 80 countries. Its 30,000 employees serve an estimated 600,000 clients and place millions of job candidates." - Morningstar
MAN is a company you've probably never heard of, but in an aging world with less immigration, a chronic labor supply shortage could make staffing companies like these excellent investments.
In our view, Manpower will remain one of the largest global staffing firms in a highly fragmented industry. The company is one of only three diversified global recruitment providers alongside Adecco and Randstad. Each global player possesses about 5%-6% market share, substantially larger than the large regional and local players they compete with. Manpower services global contracts for multinational firms and small- and midsize businesses through its local branch network.
We expect Manpower to continue shifting toward higher-value solutions and services. This shift is easier said than done, but Manpower has made gradual improvements in recent years, and we believe there is room for it to grow. Furthermore, we think Manpower will maintain the shift to higher-margin human resource solutions as multinationals increasingly look to outsource large-scale recruiting activities. We think growth in these areas will provide a runway for Manpower to improve profitability while reducing its business' overall cyclicality. Manpower will also benefit from European governments’ pro-employment policies. In France, for example, tax credits have been put in place to lower employer payroll expenses to improve competitiveness. We assume employers will continue outsourcing recruiting to global staffers such as Manpower." - Morningstar
Reasons To Potentially Buy ManpowerGroup Today
Metric | ManpowerGroup |
Quality | 80% 11/13 SWAN (Sleep Well At Night) staffing company |
Risk Rating | Very Low |
DK Master List Quality Ranking (Out Of 500 Companies) | 256 |
Quality Percentile | 49% |
Dividend Growth Streak (Years) | 11 |
Dividend Yield | 3.7% |
Dividend Safety Score | 87% Very Safe |
Average Recession Dividend Cut Risk | 0.5% |
Severe Recession Dividend Cut Risk | 1.7% |
S&P Credit Rating | BBB Stable |
30-Year Bankruptcy Risk | 7.50% |
Consensus LT Risk-Management Industry Percentile | 85% Very Good Risk-Management |
Fair Value | $115.29 |
Current Price | $73.84 |
Discount To Fair Value | 36% |
DK Rating | Potentially Very Strong Buy |
PE | 9.0 |
Cash-Adjusted PE | 6.7 anti-bubble blue-chip |
Growth Priced In | -3.6% CAGR |
Historical PE Range | 14 to 16 |
LT Growth Consensus/Management Guidance | 10.1% |
PEG Ratio | 0.66 |
5-year consensus total return potential | 20% to 25% CAGR |
Base Case 5-year consensus return potential | 23% CAGR (4X S&P 500) |
Consensus 12-month total return forecast | 21% |
Fundamentally Justified 12-Month Return Potential | 60% |
LT Consensus Total Return Potential | 13.8% |
Inflation-Adjusted Consensus LT Return Potential | 11.6% |
Consensus 10-Year Inflation-Adjusted Total Return Potential (Ignoring Valuation) | 2.99 |
LT Risk-Adjusted Expected Return | 8.94% |
LT Risk-And Inflation-Adjusted Return Potential | 6.72% |
Conservative Years To Double | 10.72 |
(Source: Dividend Kings Zen Research Terminal)
MAN offers a very safe 3.7% yield and is trading at just 6.7X cash-adjusted earnings (through 2023 recession earnings).
It's so undervalued that if it were to soar 60% within 12 months, that would simply bring it back to historical fair value.
MAN 2024 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
If MAN grows as expected through 2024 and returns to market-determined historical fair value, it could deliver a 118% total return or Buffett-like 40% annually.
- 4X more than the S&P 500
MAN 2027 Consensus Total Return Potential
(Source: FAST Graphs, FactSet Research)
Want to potentially triple your money in five years? That's what analysts think MAN could do from today's anti-bubble valuation.
ManpowerGroup Investment Decision Score
DK Dividend Kings Automated Investment Decision Tool
MAN is a reasonable and prudent fast-growing anti-bubble blue-chip option for anyone comfortable with its risk profile. Look how it compares to the S&P 500.
- 36% discount vs. 0% market premium = 36% better valuation
- 3.7% yield vs. 1.6% yield
- 35% better consensus long-term return potential
- 2.5X better risk-adjusted expected return over the next five years
- 2X higher consensus income over the next five years
Bottom Line: These 2 Anti-Bubble Dividend Blue-Chip Bargains Could Make You Feel Like A Stock Market Genius In 5+ Years
Just because the market is fairly valued doesn't mean you still can't find incredible anti-bubble blue-chip bargains. FedEx and Manpower Group are two perfect examples of wonderful companies that won't likely appear on Twitter or social media.
These aren't meme stocks; they aren't speculative growth stocks, just incredible combinations of quality, safety, value, and strong growth potential.
Trading at 7.6X cash-adjusted earnings and growing at double-digits might not be sexy. But for the smart and patient long-term investor willing to look beyond the potential 2023 recession to the brighter years to come, you could literally triple or quadruple your money in five years, in my opinion.
All while enjoying above-average to generous safe yields that pay you to wait out the bear market.
Wall Street is designed to transfer money from the active to the patient." - Warren Buffett
For further details see:
2 Amazing Anti-Bubble Dividend Blue-Chip Bargains