Sell Glamour Stocks and Buy Value

Glamour stocks might be losing their glow. Amazon (AMZN: 213.51, -3.81, -1.75%), Netflix (NFLX: 82.08, -2.06, -2.45%) and Apple (AAPL: 404.78, -0.17, -0.04%) have long been the market's prom queens, multiplying more than fourfold in value over five years through September. But each stock has stumbled as of late. That could be a coincidence, or it could signal a long-awaited shift in the types of stocks that outperform. Cautious investors should prune their portfolios of high-expectations shares just in case.

For mutual fund investors, the T. Rowe Price Dividend Growth fund has outperformed the S&P 500 index over the past one, three, five and 10 years. Top Holdings include Accenture (ACN: 60.26, -1.50, -2.43%), McDonald's (MCD: 92.85, -0.44, -0.47%) and Pfizer (PFE: 19.26, -0.56, -2.83%). Two long-term trends bode particularly well for stocks and funds like these, according to Ms. Subramanian. The percentage of S&P 500 companies paying dividends has fallen over the past 25 years, and the retirement of the baby boomers has begun. That means demand for investment income will likely rise against limited supply, boosting the appeal of dividend-paying stocks.

Source: Smart Money

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