Undervalued Dividend-Growth Stocks, Funds for an IRA, and Super Bubbles

And our take on the latest inflation numbers. [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_smartinvestor&utm_content=34185&elqTrackId=19b9ead2a93c4a5a89349839da6b160e&elq=f569f40d8c104fdcb08477a4afb5306c&elqaid=34185&elqat=1&elqCampaignId=15958) [Smart Investor] Smart Investor with [Susan Dziubinski, Director of Content]( [Susan Dziubinski] Inflation, Super Bubbles, and Putting Market Volatility Into Perspective January’s number is in: Inflation has risen 7.5% over the past year. As a result of this larger-than-expected number (the highest in 40 years), market watchers expect the Federal Reserve to be more aggressive with interest-rate hikes this year. Morningstar chief economist [Preston Caldwell]( expects some inflation relief by midyear as supply constraints loosen. Read more of Preston’s insights in [7 Charts on the Big CPI Rise, Fed Rate Hike Outlook](. What might that mean for markets this year? This week’s guest on [The Long View podcast]( GMO’s Jeremy Grantham, talked about why he thinks the U.S. market is in what he calls a “super bubble” that spans stocks, bonds, real estate, and even commodities. “You're playing with fire if you combine the lowest interest rates and the highest bond prices in history with the highest stock market in history and the highest multiple of family income in housing,” he said. GMO’s co-founder knows a thing or two about market bubbles: He correctly predicted two recent bubbles this century. Also this week, Morningstar portfolio strategist Amy Arnott compared current market volatility with historical norms in [Putting Recent Market Volatility in Perspective](. After examining the numbers, Amy concluded that the market’s current volatility level isn’t too far outside of its historical range: “Based on past history, periodic market downturns are entirely normal and to be expected. Over longer time periods, the market tends to be self-correcting; certain areas may get frothy and reach bubble status, and overall market valuations may overshoot the mark, but periodic downturns are a way of correcting for the excess.” Of course, only time will tell whether the market has achieved bubble status, super or otherwise. But given stubborn inflation and the uncertainty around interest rates, one thing is pretty likely: It’s going to be a volatile year. Promising Dividend-Growth Stocks Dividend-growth stocks--those that have a history of increasing their payouts over time--have plenty going for them. For starters, the management teams at these companies are focused on delivering a growing cash stream to their shareholders--a shareholder-friendly mindset. Moreover, companies that consistently ratchet up their dividends are usually profitable and financially healthy--a plus in any market climate. In [my Our Picks column this week]( I shared seven undervalued and heavily weighted stocks in the Morningstar Dividend Growth Index. Dividend-stock fans should also take a look at my colleague [Lauren Solberg]( dive into [Why Energy Stocks Are Gushing High Dividends](. “The energy sector’s dividends are growing faster than any other part of the U.S. equity market,” observed Lauren. To find out why, read her article. Funds for an IRA If you want to find a procrastinator, look no further than the typical IRA investor. According to many IRA providers, investors often wait to contribute to IRAs until the mid-April deadline. On top of that, some leave those contributions sitting in cashlike accounts, thinking that they’ll move the money into an appropriate investment “someday.” Talk about leaving money on the table! “Ideally, if you can fund your IRAs as early as you possibly can and get that money invested, that gives the money more time to compound,” [reminds]( Morningstar’s director of personal finance and retirement planning, [Christine Benz](. “And it's especially important for younger investors because, over time, the combination of either not making the contribution or not actually getting the money invested in something can drag on the portfolio's long-term returns.” Not sure what to invest your IRA dollars in? Morningstar’s director of fund research [Russ Kinnel]( shared some ideas in [3 Funds for an IRA]( Morningstar director of global ETF research [Ben Johnson]( countered with [3 ETFs for an IRA](. Not to be outdone, Christine suggested [what types of investments you should keep out of a taxable account]( means that these are exactly the types of investments to tuck into a tax-friendly IRA wrapper. And speaking of wrappers, we’ve wrapped up our latest tax-related content in our annual [Tax & IRA Guide](. Stock of the Week: Disney Disney reported blowout numbers for the quarter, with notably strong subscriber growth numbers for Disney+ and improving revenues in its parks business. “The ongoing pandemic and COVID-19 variants continue to create uncertainty for the near term, but the continued growth in bookings and per capita spending offer reassuring signs for a return to long-term growth,” [said]( Morningstar senior analyst [Neil Macker](. Neil reiterated our wide [Morningstar Economic Moat Rating]( and $170 [fair value estimate](. ADVERTISEMENT [media]( [media] Morningstar Specialists [Don’t Wait Until Tax Day to Fund Your IRA]( [Don’t Wait Until Tax Day to Fund Your IRA]( Wind up your 2021 tax year before April 18. Christine Benz, Susan Dziubinski [Putting Recent Market Volatility in Perspective]( [Putting Recent Market Volatility in Perspective]( Stocks have been more jittery than usual, but volatility is to be expected. Amy C. Arnott, CFA [ETFs Have a Tax Advantage Over Mutual Funds]( [ETFs Have a Tax Advantage Over Mutual Funds]( ETFs' structure gives them a leg up. Ben Johnson, CFA [7 Undervalued Stocks With Growing Dividends]( [7 Undervalued Stocks With Growing Dividends]( These heavily weighted names in the Morningstar U.S. Dividend Growth Index are all at least 10% undervalued. Susan Dziubinski [Jeremy Grantham: The U.S. Market Is in a Super Bubble]( [Jeremy Grantham: The U.S. Market Is in a Super Bubble]( The GMO strategist and perma-bear thinks the major asset classes are inflated, but calls value stocks 'pretty darn cheap.' Christine Benz, Jeffrey Ptak, CFA [Wall Street Ethics: The Good, Bad, and Ugly]( [Wall Street Ethics: The Good, Bad, and Ugly]( When the Street deserves brickbats--and when it doesn't. John Rekenthaler [Morningstar's Guide to Setting Your Withdrawal Rate]( [Morningstar's Guide to Setting Your Withdrawal Rate]( Here's how to tap into your nest egg when the time comes. Susan Dziubinski [New IRS Rules Help Young IRA Owners]( [New IRS Rules Help Young IRA Owners]( IRA owners under the age of 59.5 now may be able to withdraw penalty-free money from their accounts. Natalie Choate [3 Funds for an IRA]( [3 Funds for an IRA]( What is suitable now? Russel Kinnel, Susan Dziubinski [Which Investments to Keep Out of Your Taxable Account]( [Which Investments to Keep Out of Your Taxable Account]( Vanguard's recent target-date fund distribution illustrates a simple fact: Some investments are structurally a poor fit for taxable accounts. Christine Benz [How Retirees Can Avoid the 'Tax Torpedo']( [How Retirees Can Avoid the 'Tax Torpedo']( Some retirement researchers are challenging the traditional thinking on tax efficiency, Social Security, and drawdowns. Mark Miller [Are Your Bond Holdings Vulnerable in a Rising-Rate Environment?]( [Are Your Bond Holdings Vulnerable in a Rising-Rate Environment?]( The "duration stress test" can serve you well in case interest rates go up. Christine Benz Popular This Week [11 Newly Cheap Tech Stocks]( Investors see the number of undervalued technology names almost double in a month, including Salesforce, Sabre. Jakir Hossain [7 Charts on the Big CPI Rise, Fed Rate Hike Outlook]( Inflation pressures broadened in January and expectations for a bigger move by the Fed grew. Lauren Solberg, Preston Caldwell [What the Ukraine Crisis Means for Oil Prices]( Russia will get its oil to the global market, whether or not it invades Ukraine. Dave Meats, CFA, Allen Good, CFA [Why Energy Stocks Are Gushing High Dividends]( Dividend growth has surged as energy companies focus on returning cash to investors. Lauren Solberg [Energy Funds' Leading Returns Defy the January Trend]( Only a small number of Morningstar Categories managed to benefit in a month filled with volatility. Benjamin Slupecki Morningstar on Google News Need a fast and easy way to stay on top of current events? Follow us on Google News to stay ahead of relevant news and our latest financial insights today. 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