52 Super Deals and Discounts for 2020

Investing

A Plug for Preferred Stocks

Preferred stocks, which are issued largely by banks, insurance companies and utilities, generally pay fixed dividends like bonds but trade like stocks. Stocks in Standard & Poor's U.S. Preferred Stock index pay an average dividend yield of 5.6%. Though preferred dividends aren't guaranteed--companies can trim or suspend them--the payment of these coupons takes priority over the payment of common-stock dividends (hence the term "preferred").

These stock-bond hybrids were hit hard during the March sell-off--the S&P U.S. Preferred Stock index fell 31.0%, just shy of the 33.8% crash in Standard & Poor's 500-stock index--and are now cheap on a historical basis, says Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute. Preferred stocks will sell off when stocks do but, like bonds, are also sensitive to interest-rate moves, falling in price as rates rise. The credit quality of the typical preferred stock fund, double-B, is just below investment grade, and interest-rate sensitivity is comparable to the typical intermediate-term bond fund.

Consider iShares Preferred & Income Securities ETF (symbol PFF, price $33, expense ratio 0.46%). The exchange-traded fund, which has lost 9.3% since the start of the year--compared with a 10.7% loss in the S&P 500--yields 5.0%. Over the past decade, it has returned an annualized 5.2%. Invesco Preferred ETF (PGX, $14, 0.52%) is worth a look, too. It yields 5.4%. Over the past decade, PGX has returned an annualized 6.6%.

Good (and Cheap) Small Stocks

Small-company stocks are cheaper relative to stocks in the broad market than they've been in years. But during a recession, stick to firms with solid balance sheets and little debt.

Tech company Digi International (DGII, $10) has a strong market position tied to the internet of things, says Andy Adams, manager of Mairs & Power Small Cap. Digi provides real-time temperature-tracking systems that help CVS Health, among others, make sure their temperature-sensitive drugs are stored properly; Walmart uses Digi's system to track temperatures for food storage. Still, shares are down 41% so far this year. "COVID will slow business at Digi" as customers put off purchases and equipment upgrades, says Adams, "but it won't tamp long-term demand."

Wasatch Small Cap Value manager Jim Larkins, $55). Shares in this maker of communications components have held up better than other small-company stocks, but Fabrinet is still down 19% from its 52-week high. The firm is benefiting from higher demand for bandwidth because it makes the components that data centers use to drive higher speeds on the internet. Fabrinet's competitive edge is its high level of customized manufacturing. "Fabrinet factories are factories within factories," says Larkins. "Customers have dedicated spaces with walls, so their intellectual property is protected." Plus, Fabrinet is flush with $436 million in cash and little debt.