Treasury Secretary Scott Bessent sat down with Yahoo Finance the other day to make one thing clear.
He’s not worried.
Not about tariffs. Or the economy. Or the stock market.
He’s confident it will all work out, pointing out how:
… tariffs are getting the majority of publicity now, but we are having very good luck – or very, very good progress. It’s not luck because it’s been a lot of hard work – on the tax bill. So the tax bill is moving through the Senate, moving through the House. I think we’re going to have some permanence for the 2017 Tax Cuts and Job Acts probably by 4th of July. And I think that will give people certainty.
And, of course, it’s certainty that Mr. Market likes the most.
As for tariffs, the topic du jour:
There are 15 large trading partners. We set aside China. There are 14, and we’re in rapid motion and setting up a process for the 14 largest trading partners, most of whom have very large deficits. So, in 90 days, are we going to have… a formal legal document done and dusted? Not likely.
But I think if we follow the process, we could have substantial clarity on those 14 away from China in terms of agreements in principle.
So even more certainty is coming!
Probably.
In the next three or four or maybe five months.
With all due respect to Bessent, the markets were not appeased yesterday. In fact, they seemed to completely ignore him, focusing instead on Federal Reserve Chair Jerome Powell’s cautionary remarks.
It seems he wants to “wait for further clarity” before making an interest rate decision.
Fortunately, we don’t have to sit around and bite our nails in the meantime. Not when there’s a sleep-well-at-night policy that gets me through this kind of market drama every time.
The SWAN Way of Selecting Stocks
I’ve adopted “SWAN,” which stands for sleep well at night,” as my baseline investment philosophy and the bedrock for our investment strategies at Wide Moat Research.
SWAN stocks, for those who don’t know, are dividend-paying companies of a certain caliber. They’re low-risk, high-quality businesses that don’t get overexcited during bull runs or overly discouraged during bear markets.
They’re always focused on safety-based growth, which means they work hard to be prepared for whatever may come.
When the economic sun shines, they use their defensive, “wide moat” advantages to generate earnings and dividend growth for stakeholders. And when the clouds come out and the rain begins to fall, they fend off the competition by maintaining disciplined risk management skills to maintain and even grow market share.
After all, it’s often during the worst times when the best bargains are revealed.
This conservative approach enables SWAN stocks to treat their shareholders phenomenally. Not only do they pay their dividends on time, but they regularly raise them during good times and bad times alike.
I cover SWAN stocks in The Intelligent REIT Investor Guide, though there I call them “blue-chip” investments, writing how:
They rarely provide the highest dividend yields or even necessarily the best total returns. And they’re not usually the type to trade at bargain prices. However, they are the type that provides years of 7%-8% total returns on average, with only modest risk. You see, blue-chip [companies] have certain qualities that set them apart.
This includes outstanding proven management that knows its business inside and out, as well as:
- “A track record of effective deployment of available capital to create shareholder value,
- Balance sheet strength and flexibility,
- Sector focus and deep regional or local market expertise,
- Conservative and intelligent dividend policy,
- Good corporate governance,
- Meaningful insider stock ownership.”
While a blue-chip, or SWAN, stock might not tick off every single one of those boxes… it will cover most. And that gives you, the investor, the confidence you need to shrug off short-term volatility and focus on the bigger picture.
This is especially true when you can buy them on the cheap during downturns like the one we’re seeing now. It’s all about risk evaluation, which involves knowing about an investment’s “margin of safety.”
Columbia University finance professor Joel Greenblatt framed margin of safety in a 2011 Barron’s interview, saying, “It’s about figuring out what something is worth and then paying a lot less for it.”
SWAN stock share prices almost always go up again. And they pay you dividends all the while you wait.
Three SWANs Trading on the Cheap
One definite devalued SWAN stock is PepsiCo (PEP). Its shares began suffering after anti-obesity drugs took center stage. And Robert Kennedy Jr. leading the Department of Health and Human Services has jittered investors further still.
Yet PepsiCo keeps expanding anyway, posting positive annual earnings per share (“EPS”) growth in 16 of the last 20 years. Better yet, it maintains an A+ credit rating, has strong cash flows, and boasts management that knows how to read consumer preferences.
Shares are trading at just $142 per share at last check – far from their 2023 high near $200. That means their price-to-earnings (P/E) ratio is just 17.5 times. Compare that with their:
- Five-year average of 25.1 times
- 10-year average of 23 times
- 20-year average of 20.9 times
PepsiCo is currently yielding 3.79%… has increased its annual dividend for 52 consecutive years… and has already announced a 5% uptick to that payout for 2025.
Johnson & Johnson (JNJ) is another long-term player with an even more impressive track record. Yes, tariffs have spooked investors, sending shares down 10% from their 52-week high. But this company is about as SWAN-ish as you can get.
It has boasted positive annual EPS growth in 18 of the last 20 years. And it’s one of only two companies the world over with an AAA credit rating from S&P Global.
Nonetheless, the current tariff panic has pushed JNJ’s P/E ratio down to roughly 15 times compared with its:
- Five-year average of 16.9 times
- 10-year average of 17.1 times
- 20-year average of 16.3 times
It’s currently yielding 3.23%… has increased its dividend for 62 years in a row… and paid out 4.8% more this month than it did back in January.
A third SWAN to consider is Caterpillar (CAT). It is a cyclical stock, unlike PepsiCo and JNJ; so when the global economy slows down, demand for its construction equipment does fall.
Just not for long. CAT shares have always bounced right back – and then some – from recessionary periods, making any dip (like the one we’re seeing now) a potential buying opportunity.
That’s particularly true considering how the S&P 500’s total return compound annual growth rate over the past 20 years is 9.6%… whereas CAT’s is 12.03%.
This global king is only yielding 1.92% right now. But it has increased its annual dividend for 31 consecutive years, including the most recent 8.5% raise.
Plus, CAT carries an A-rated balance sheet, one of the key hallmarks of a true SWAN. And that makes it – like PepsiCo and Johnson & Johnson – hard to beat.
Regards,
Brad Thomas
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Source: Wide Moat Research