A Warning About Microsoft, Amazon, Facebook & More

Often the biggest risk in investing lies where you least expect it.

Today, using a lesson from very recent history, I’m going to show you an area of the market where you should tread very carefully.

Unfortunately, it’s an area of the market that people continue to flock to in droves.

Then, I’m going to show you a stock from an area that market where you should instead be buying. Hint: It’s an area where nobody is looking.

To whet your appetite, let me just mention that this stock carries an almost 9% dividend, plus up to 300% upside from its current share price…

Yes… “Blue Chips” Can Also Make You Blue

There is no official definition for a blue chip stock.

In general, though, a blue chip is considered to be a large, reliable and financially sound company that is a leader in its industry.

These are the largest companies in the world whose stocks are supposed to be held for the long-term.

Or are they…?

I submit for your consideration Exhibit A: the table below.

This table details the stock market performance of the ten companies that were the largest publicly traded stocks (by market capitalization) as of December 31, 2007.

As of the end of 2007, these ten companies represented the bluest of the blue chips. The strongest companies in the world. The stocks that you should have been able to buy for your portfolio and hold indefinitely.

Market Capitalizations

Except they didn’t end up that way.

As a group, these ten stocks have performed abysmally since the end of 2007, with only one (Microsoft) providing a positive return.

I show this to you because I believe it provides a lesson that is worth remembering today.

That lesson is simple: valuation matters.

Take a look at today’s five largest U.S. publicly traded companies by market cap:

Microsoft Corp. (MSFT) — $1.08 trillion

Apple Inc. (AAPL) — $1.01 trillion

Amazon.com Inc. (AMZN) — $938 billion

Alphabet Inc. (GOOGL) – $850 billion

Facebook Inc. (FB) — $559 billion

These five are great companies with powerful business models. I do not dispute that for a second.

These are blue chips if there ever was such a thing.

But whether they are going to be great stocks from now going forward is another matter entirely.

With valuations that are this enormous, these companies must operate flawlessly from here on out to reward investors. These businesses are priced for massive continued success.

But as the chart above proves, moments of widespread love like this for a group of stocks is much more a signal to sell than it is to buy.

That is why I think investors should be looking away from these blue chips and instead search areas of the market that everybody else is ignoring…

This Stock Is Way, Way Off the Radar

Have you ever heard of Braemar Shipping Services PLC (BSEAF)?

Neither has anyone else.

In fact, I hadn’t either until I read the latest commentary from one of my favorite investment shops.

Braemer is one of the leading shipbroking companies in the world. And its stock currently offers a massive dividend yield of almost 9%.

Shipbroking is a financial service and an integral part of the global shipping industry.

Shipbrokers are specialists who act as intermediaries (in other words, as brokers) between the owners of ships and the customers who want to charter a ship to transport cargo.

This a good business with very few fixed costs, which allows it to remain profitable throughout the business cycle. Add to that the fact that Braemer’s balance sheet carries just a modest amount of debt, and we have the makings of a low risk investment.

With a near 9% dividend yield, Braemer’s share price doesn’t even need to go up for owning this stock to be rewarding, but I expect that it will as the shipping market heads into an upswing.

The sharp contrarian investors at Horizon Kinetics believe that the upside in Braemer’s shares from the current price could be 300%.1

That would be a pretty nice compliment to a 9% dividend yield, and I suspect a lot more upside than any of the big blue chips will provide from current valuations.

One thing to note, however, is that BSEAF’s trading volume is very light.

If you decide you are interested in Braemer, make sure you use a limit order to buy the stock.

And one more time for precaution: whatever you do, stay away from today’s overinflated blue chips…

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge

1 Market Commentary, Horizon Kinetics

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Jody Chudley

Jody Chudley is a contributing analyst to Lifetime Income Report and Contract Income Alert. Jody is a qualified accountant with a degree in Finance from Brandon University. After spending fifteen years in various finance and planning roles with an international financial institution, Jody set out to manage his portfolio on a full-time basis.

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