Sunday, October 30, 2011
What Are You Buying?
This is the third time I'm posting an article where I ask readers what their near-term purchases might be. I'm keen on making sure this blog is an interactive experience. I really enjoy sharing ideas with you readers out there as mutually learning from one another is one of the main purposes I commit myself to this blog.
The market has experienced quite a run-up lately. The S&P 500 is up 13.58% over the last month which leads me to believe that a downdraft in the market might be just around the corner. I'm certainly hoping there is, anyway. A lot of the stocks I keep on my watch list, which includes my own portfolio, are up quite a bit and a few of them are simply priced out of my buy range right now. But, one of my mantras is to purchase dividend growth stocks every single month with the funds that are left over after paying my expenses. This is my form of forced savings and dollar cost averaging. I do try, however, to purchase more when the market is down and less when the market is up. I do believe that in any market one is able to find attractively valued businesses relative to the overall market as I do not believe in the efficient-market hypothesis.
The list I'm going to present includes stocks that I'm currently interested in adding to the Freedom Fund. I'll receive my commission check early next month and will make a purchase sometime after that, the time frame of which depending on how the market responds. This list is in order of what I'm most interested in buying at the top.
Here's my short watch list:
Raytheon Company (RTN)
Raytheon is a major United States defense contractor with nearly $25 billion in annual sales that operates through six segments: integrated defense systems, intelligence and information, missile systems, network-centric systems, space and airborne systems, and technical services. Sales to the U.S. government account for more than 88% of the company's total sales. Waltham, Mass., based Raytheon employs 72,000 people.
Raytheon was listed on my last article article where I shared what I was interested in. The reasons I was interested then still remain. It's a defense stock, and being such has been beaten down due to fears over the reduction in defense spending. Overall, I think there is value here with a solid entry yield to boot. It trades for a P/E ratio of 8.58 and has a pretty decent entry yield of 3.95%. It has 7 years of dividend growth behind it with a 5-year DGR of 10.8%. It has a solid balance sheet and a debt/equity ratio of 0.4. It has a low payout ratio of just 33.9%.
*Morningstar values RTN at a 4/5 star valuation.
*S&P rates RTN as a 3-star Hold.
Medtronic Inc. (MDT)
One of the largest medical device companies, Medtronic develops and manufactures therapeutic medical devices for chronic diseases. Its implantable products include pacemakers, defibrillators, heart valves, stents, insulin pumps, and spinal fixation devices. The company markets its products to health-care institutions and physicians in the United States and overseas. Foreign sales account for about 41% of the company's total sales.
Medtronic is a solid health care play, in my opinion. It's been on my watch list for some time now and I think even though it's had a pretty solid run-up lately, being up 6.74% over the last month, it's still a pretty solid value for a long-term purchase. It's a global leader in its space and is committed to global growth in key emerging markets. It's trading for an attractive 12.37 P/E ratio with an entry yield of 2.73%. It has 34 years of dividend growth behind it, with a 5-year DGR of 19%. It has a debt/equity ratio of 0.5. The payout ratio is 33.4%, which leaves a lot of room for continued dividend growth.
*Morningstar values MDT at a 4/5 star valuation.
*S&P rates MDT as a 3-star Hold.
Kinder Morgan Inc. (KMI)
Kinder Morgan Inc. owns the general partner, incentive distribution rights, and an approximate 11% interest in the limited partner units outstanding of Kinder Morgan Energy Partners. It also owns a 20% stake in NGPL, a major interstate natural gas pipeline.
This one might be an interesting play. It's hard for me to completely value KMI, as they own the general partner of the master limited partnership of Kinder Morgan Energy Partners. MLP's are a bit difficult for me to totally value, and they operate under different circumstances from normal corporations. KMI was taken public earlier this year, after being taken private back in 2007. Now that it's back on the market there are a lot of investors really interested in this play as they have a large interest in KMP, one of the largest pipeline operators in the world, with over 37,000 miles of pipelines. One of my readers, Joe, and a fellow blogger Dividend Growth Investor have peaked my interest in this company. It has an attractive entry yield of 4.12%, and the dividend growth of KMP ensures solid growth with KMI.
*Morningstar values KMI at a 4/5 star valuation.
*S&P currently has no rating for KMI.
General Dynamics Corporation (GD)
Falls Church, Va.-based General Dynamics manufactures ships, armored vehicles, defense-oriented information technology systems, and business jets. The firm gets around 72% of revenue from the Department of Defense and the rest from foreign sales and Gulfstream business jets. In 2010, the firm generated $32.4 billion in sales and $2.6 billion in earnings.
General Dynamics is a solid industrial play, in my opinion. They are one of the largest defense companies in the world, and as with RTN, the projected and assumed slowdown in defense spending has left shares with GD under performing the overall market. GD shares currently trade for a P/E ratio of 9.12 with an entry yield of 2.87%. It has 20 years of dividend growth behind it already with a 5-year DGR of 16%. The debt/equity ratio is 0.2. Currently, the payout ratio is 26%, which leaves a lot of room for future dividend growth. I think this is a solid defense stock, but I like RTN a bit better as the entry yield is higher and the fundamentals are similar. I'm interested in both, however.
*Morningstar values GD at a 4/5 star valuation.
*S&P rates GD as a 3-star Hold.
That's my list. What are you buying?
Full Disclosure: None.
Thanks for reading.