1. JPMorgan Chase (JPM)

Consistently leading the pack of U.S. big banks in terms of operating metrics such as efficiency ratio (~57%), JPM remains my top pick in the financial sector. Consistent dividend growth over the years coupled with the stock market sell-off have resulted in a yield of 3.2%. With near-ubiquitous branches and a debut into the asset management space with zero or near zero commissions on many ETFs, JPM should continue to see its user base and deposits grow.

…The last time that JPM was this cheap was over a year ago in November 2017. Since Q3 ?17, JPM has increased EPS by 33%, yet its share price today is at the same level. That fact screams value to me and I will be looking to pick up shares under $100.

2. Altria (MO)

Moral investing decisions aside, Altria ironically represents safety in the investment space. As a purveyor of ?vice products? such as:

• alcohol through their Anheuser-Busch InBev (BUD) stake and wineries,
• traditional cigarettes through brands like Marlboro,
• smokeless tobacco like Skoal,
• vaping products
• and pending IQOS heatsticks,

MO has an abundance of wonderfully branded and popular products.

Despite the fact that cigarette use among US citizens is among all time lows, the demand for these products is not going to drop due to a recession. MO has wisely diversified its product line with recent investments into cannabis and Juul, which is currently in talks with Altria over a stake in the company…

Altria has shown consistent EPS growth and share count reduction.

• With an oft-repeated goal of a payout ratio of 80%, management has been and will continue to be incredibly shareholder friendly.
  • The dividend yield is now at 6% which has historically only happened during or immediately after a market crash.
  • A PE ratio of below 10 represents great value for a stock that should effectively be recession-resistant…

3. Walmart (WMT)

The investment thesis for Walmart hasn't changed; the retail giant is still making billions of dollars while aggressively trying to fight off Amazon (AMZN) for e-commerce traffic. Huge investments in e-commerce such as in India with the Flipkart majority stake show the commitment to achieve growth. Hopefully this will pay off for the company better than its other global investments which have been relatively poor performing. In the short term the deal will be a drag on EPS, but the long-term potential is there. Dividend yield of 2.2% isn't anything to write home about, but it helps fight inflation.

…WMT managed to grow online sales by 43% for the latest quarter which beat the prior quarter of 40%. That figure alone tells me that their efforts are already being successful…With comparable shipping speeds that don't require a costly membership, I would not be surprised if WMT shows another blowout online sales quarter…If a recession were to occur, Walmart might even see more shoppers than normal, a la 2009, as people with less money in their pockets want the best price possible.

4. New Residential (NRZ)

As an investor that loves REITs, I couldn't help but put one on the list.

• New Residential is not a traditional mortgage REIT, but rather one that services the mortgages in exchange for a small fee. Magnify that fee by half a trillion dollars worth of mortgages and you can quickly see how NRZ makes more than a pretty penny.
• In addition to these mortgage servicing rights, NRZ also makes consumer loans and servicer advances. These assets produce a fantastic yield on cost, with the main issue being that the assets are depreciating in nature. As more and more of the loans are repaid, assets shrink. While NRZ has been brilliant at replacing these assets, there is concern out there that someday the magic will fade. I do not believe that it will, and my article history shows that I have been a long-term believer in this company:
  • Book value continues to rise in an environment that has seen virtually every peer dwindle,
  • and core earnings of $0.63 easily out-earn the generous $0.50 dividend (yield is 12.4% at time of writing).

If this stock is so great, then what has happened to the share price lately? Other than the secondary offering of 25 million shares, there are sector jitters about the profitability of the mREIT sector with such a flat yield curve. [However,] as long as consumers continue to make payments, NRZ will be in fantastic shape. High mortgage rates, with the fixed 30-year rate near 4.8%, have also meant that no one in their right mind would refinance their mortgage. Lower refinance rates help extend the lifespan of NRZ's mortgage servicing rights, which leads to greater returns. NRZ has recovered quickly after every drop, and with the more than $400 million of dry powder from the secondary offering on the balance sheet, we should soon hear of the next great addition to NRZ's portfolio.

5. Western Digital (WDC)

Western Digital does not get much love from Mr. Market, as tech, semiconductor and flash memory companies are in the toilet. The chart below looks absolutely atrocious. The main cause of the massive 62% decline from 52-week highs is:

• due to deteriorating average sales price of flash and storage products and
• the trade war with China which has also thrown a wrench into plans for a recovery due to tariffs and reduced market access. Micron (MU) has been struggling right there alongside WDC and has a similar looking chart.

I believe that the punishment is overdone…The company is priced like it isn't cash flow positive, and WDC makes plenty of money.

• Gross margins remain at 38% FCF comes in a touch under $500 million for the quarter.
• The $0.50 quarterly dividend remains easily covered and the yield is now at 5%, which is a historic high for the stock.

With new products like MAMR, superior to HAMR from Seagate (STX), which will increase storage potential and decrease costs, the future is bright for WDC. In an increasingly data-heavy and connected world, storage will continue to be vital. If you can put up with seeing red for a little while longer, the long term share price growth seems like a good bet…"

(*The author's views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)

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