Under the Radar: Low Expectations and High Yields Set These Stocks Apart

It takes a few years before you learn the most important words in investing (and most of life as well).

“I do not know.”

What is the market going to do over the next year?

I do not know.

How long will the trade war last?

I do not know.

No one knew that the Trump Administration would announce the level they did.

No one knew how the markets would respond.

I did not talk to one single person who thought he might pause the reciprocal tariffs.

No one knew, or even suspected, that Deep Seek would come out of nowhere to challenge the AI storyline.

What is the next breakthrough in technology?

I do not know.

Will AI reach Artificial General Intelligence?

I do not know.

If it does reach AGI, when will it happen?

I do not know.

As investors, we need to focus on what we can know.

What are we paying for assets owned by the business and the cash flow produced by operations?

That we can figure out quickly.

Once we know that, we can plan accordingly.

If a company is trading at a high multiple of earnings and assets, then we know everyone expects the good times to continue.

Everyone loves the company and everyone owns the stock.

Any surprises are likely to be negative and cause the price of the stock to drop precipitously as surprised and disappointed shareholders head for the exits.

If the valuation is low, then we can determine that no one expects anything good to happen and very few people own the stock.

Any surprises will likely be positive.

The unexpected positive news will bring buyers into the stock, and the resulting buying pressure will push the share price higher.

Unless you are an insider with some influence over the outcome, it makes more sense to own a collection of businesses trading at low valuations where the inevitable surprises can deliver large returns.

Owning what everyone else does will deliver at best average returns.

When we are in an environment like we are today where the average returns are likely to be quite low, the popular expensive stocks can deliver large doses of disappointment.

The furniture business is not at the top of anyone’s excitement list.

That’s especially true given that the proposed tariffs would have a negative impact on many furniture companies.

The layoffs in companies that sell to government also contribute to a lackluster environment for furniture and furniture stocks.

There is no one on CNBC or on the internet touting the exciting opportunity in couches and dining room tables.

Shares of Ethan Allen InteriorsETH, one of the higher quality furniture companies, have been bouncing around in a range for a long time now.

Ethan Allen is one of the leading furniture retailers in the United States and has been around since 1932.

Ethan Allen will be far less impacted by potential tariffs as 75% of their products are made in the United States.

No one is excited about the stock.

As a result, the shares trade at less than 8 times the cash being produced by the business.

A good portion of that cash is being returned to shareholders as a dividend.

Ethan Allen shares currently yield over 5%.

The company has been generous about sharing wealth and has grown the payout by about 15% annually over the past several years.

No one is expecting much from the company, and any positive news could send the stock higher quickly.

Growing earnings and modest multiple expansion over the next several years, along with the dividend, should help deliver excellent long-term total returns from current levels.

No one appears to expect much from shares of TEGNA TGNA either.

There have been two failed takeover attempts over the past several years and they are in a boring business.

TEGNA operates a portfolio of television stations and digital properties across the United States. The company owns 64 television stations in 51 markets, reaching approximately one-third of all television households nationwide.

TEGNA’s stations operate under various network affiliations including NBC, CBS, ABC, and FOX.

The stock is currently trading at less than six times the cash produced by the business.

Any good news or positive announcement will bring buyers back into the stock and push prices higher.

There is a 3.17% dividend yield to collect while you wait for good things to happen.

Management has consistently increased the payout by more than 10% annually for the past five years.

No one knows what will happen next.

We do know that there will probably be surprises and events we never saw coming.

It makes sense to own businesses where the surprises are likely to be positive and lead to a surge of buying interest.

Doing what everyone else does sets the stage for negative surprises.

I prefer positive ones.