Will “sell in may and go away” strike fear into the market and leave investors screaming for the hills? I’m certainly hoping it does! Broad weakness and raised volatility is music to my ears. When the prices drop on my favorite stocks, it’s like going to the local grocery store and finding that bread, cereal and milk are all on sale. I was going to buy these products anyway, but buying them for less money is even better. That’s how I feel when share prices drop. I was going to purchase shares in quality companies anyway as part of my long-term plan, so getting a stellar opportunity to purchase them at lower prices is certainly something that I’m excited about. As a net long-term buyer of stocks, a sideways, or declining, market is better for me than a steadily rising market.
There are a lot of solid dividend growth stocks that have very solid underlying fundamentals but have become fairly expensive in the current environment. With Treasuries currently starving fixed-income investors looking for big yield, there is likely a lot of investors bidding up the cost of strong dividend growth stocks. I’ve been scanning for value in this market, and although it’s difficult to find I’m okay with paying a premium for quality. With that said, however, long-term returns depend on the price you pay. Price is what you pay and value is what you get. I love quality companies, but I love value even more.
Here are three stocks that I’m interested in purchasing on weakness:
It’s difficult to find any weakness with this stock. It’s up over 11% YTD and not showing any signs of slowing. If it dips a few points you can likely count me in as a buyer. It’s already my largest position. It’s currently trading for a P/E ratio of 17.41 with an entry yield of 3.51%. That’s a pretty solid yield in this market, but certainly lower than a lot of other tobacco plays out there. What you get in lieu of a huge yield is strong fuel for future growth of earnings and dividends as PM operates as the #1 or #2 player in most emerging markets around the world. It’s been very strong lately, and I’m interested in seeing a 3-5% drop in current prices.
Colgate-Palmolive Company (CL)
What can you say about CL? It’s currently trading just below $100 on all-time highs. Colgate-Palmolive is one of the most solid companies out there. It sells products that I, and many millions of consumers worldwide, use every single day. I have not initiated a position in CL because every time I thought about buying this stock it was just so darned expensive. It’s currently trading for a P/E ratio of 20.15 with an entry yield of 2.49%. I simply do not pay more than 20 times earnings for a dividend growth stock, especially with a yield below 3%. I’d love to see a 5-10% pullback in CL shares and would be an interested buyer then.With great exposure in emerging markets around the globe, CL is poised to continue growing earnings at healthy rates for decades to come.
The Coca-Cola Company (KO)
I love a good can of Coke. I actually put mine in the freezer for about 15-20 minutes before drinking it so it gets a little slushy. That’s some good stuff. What isn’t good though is how expensive KO is right now. With a P/E ratio of 19.90, it’s just a little pricey for me. And I’m willing to pay for quality. It currently has an entry yield of 2.72%, and is one of the safest and most solid dividend growth stocks an investor can purchase. I’d love to have a larger position in KO than I currently do, but shortly after I purchased it in the low $50′s in 2010 it started a run-up that hasn’t shown any signs of slowing. If it dips back down below $70 per share I’d be interested in increasing my position in this solid beverage company. KO is making big bets overseas and is looking to retain its crown as the #1 soft drink company in the world.
Full Disclosure: Long PM, KO.
Thanks for reading.
Photo Credit: Stuart Miles