Wednesday, February 15, 2012
Well, everyone is expecting a pullback in the markets. I read about a lot of investors currently selling equities and converting that capital into short-term bonds or cash. I continue to believe in my long-term strategy of buying attractively priced businesses every single month on my march to financial freedom and holding those businesses as long as they continue to raise dividends and don't become extremely overvalued or lose the fundamentals that compelled me to purchase in the first place.
The S&P 500 is up 6.81% YTD already and we're not even two months into the year. It's been an extremely strong start to the year, and although I am expecting a pullback like a lot of other investors I don't know exactly when it's going to come so I just continue to do what I know how to do. I take excess capital from my high savings rate and purchase what businesses I think give me the best chance to grow my burgeoning portfolio.
As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.
I actually didn't plan on making any purchases this month. This was due less to the strong market performance and lack of value, and due more to the fact that I'm a little light on cash after the recent purchase of my car. Alas, I just can't stay away from the market when I see a weak day or see equities I'd like to add to my portfolio under-performing the market. Earlier today I made two purchases and I'll discuss them below.
I purchased 16 shares of Norfolk Southern Corp (NSC) on 2/15/12 at $68.23 per share. I initiated a position with NSC last month, and I feel it's one of the stronger railroad plays. I wasn't planning on adding to my position with this company so soon after my purchase, but it has dropped significantly since my last purchase and I do believe in averaging down on my positions. Today's 3.64% drop offered me an opportunity to do so. I believe railroads are a strong investment right now. The cost of oil is extremely high and railroads offer a cheap transportation option to get goods across vast distances cheaply. The low demand for coal right now, due to the low cost of natural gas, has hit NSC hard due to their reliance on transporting coal to grow earnings. I believe this is an opportunity, so I decided to add to my position with NSC. The entry yield on my purchase is 2.76%, which I think is respectable. This investment will provide me with $30.08 in yearly dividends based on the current payout.
For my second purchase, I decided to buy 19 shares of PepsiCo, Inc. (PEP) on 2/15/12 at $63.10 per share. This now makes PEP one of my larger positions, as I now own 77 shares of PEP. I love PEP. They have a wide economic moat due to their economies of scale, wide distribution network and quality product that people are usually willing to pay a premium for. I know I personally use their products on a near daily basis. The P/E ratio is 15.7, which while not fantastic, is a fair price to pay for this quality company. The moderately weak balance sheet is the only thing I really don't like about this company. I like the management in place, and I like the fact that CEO Indra Nooyi is staunchly against splitting the company's beverage businesses from the snack food businesses. I think PEP is a solid dividend growth holding for the long-term with 39 years of dividend growth behind it. It has a 5-year dividend growth rate of 12.2%. The entry yield on my purchase is 3.26%. It will provide me with $39.14 in yearly dividends based on the current payout.
I still own 24 positions, due to my adding to positions I already owned.
Some analyst opinions on my recent purchases:
*Morningstar currently rates NSC as a 4/5 star valuation.
*S&P currently rates NSC as a 4-star Buy.
*Morningstar currently rates PEP as a 4/5 star valuation.
*S&P currently rates PEP as a 4-star Buy.
I'll update my Freedom Fund in early March to reflect my recent purchases.
What are you buying?
Thanks for reading.