Monday, March 25, 2013
What Are You Buying?
I haven't done one of these posts in a while, but with the Dow Jones Industrial Average breaking new all-time highs seemingly daily and the S&P 500 approaching all-time highs I figured now would be a good time to see what stocks you readers are interested in.
I've gotta be honest. I don't see a ton of value out there. And that's coming from a guy who consistently shies away from valuing the market as whole to focus on individual securities and their independent valuations. I've been intently scanning through my portfolio, along with a watch list of about 100 or so securities, and there is little out there to really excite me. However, that doesn't mean that I'm not interested in deploying capital into what I see are the best opportunities the market is currently presenting me.
I have been a bit more apprehensive than usual lately, deciding to hold on to capital a little longer than I usually would like. Nothing necessarily wrong with that, as having liquidity in a falling market can be quite an envious position to be in. But, what this action has forced me to do is really look deep inside myself and ask myself what am I investing for? What are my goals? Where is all of this going?
And the answer I came up with is certainly not to be the guy who has the biggest cash balance in my savings account. No surprise there? Good. The answer is to build an ever-growing source of dividend income by way of an ever-expanding portfolio of high quality companies that continue to pay out appropriate (~50% or so) portions of profits to shareholders, and continue to raise these payouts on a regular (annual) basis. As such, it's hard to build that ever-growing source of dividend income by way of an ever-growing portfolio if I'm not buying equity positions with these high quality companies.
So, with that comes renewed focus. I have been keenly taking a look at the market and breaking down the sectors a bit to see where the value really is. You can see an idea of where the major sectors are currently valued at here. I don't put a lot of importance or emphasis on charts like these, but they did pretty much confirm what I had felt before looking up the information. Most of the value seems to reside in energy and financial stocks. So, that's where some of my focus is at currently. Individually, I also like some of the plays in the industrial, technology and materials sectors. I find that most of the consumer-based stocks and utilities are currently pricey after investor's flight to safety and yield in an otherwise low-yield environment.
The below list is in no way complete, but is a snapshot of some opportunities I'm currently interested in. I'm going to have a fairly decent stockpile of cash available to me (larger than what I already have) in early April. I'll likely have enough for 3 sizable purchases. How much capital I actually deploy will depend on how moody Mr. Market actually is at that time. You can see below some of the high quality companies I'm currently looking at.
Air Products & Chemicals, Inc. (APD)
Air Products and Chemicals, Inc. is a supplier of hydrogen and helium. It also provides semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives.
I've had APD on my watch list for quite some time now, but have never been able to purchase shares for one reason or another. Currently trading for a respectable P/E of 17.85, it's not the cheapest stock on the market. However, I do believe it's trading for less than intrinsic value. It currently has an entry yield of 3.25%. APD is attractive to me because they supply the products and chemicals that manufacturers of everyday products require. APD is a backbone of manufacturing and the 31 years of dividend growth doesn't hurt either. They just recently raised the dividend by 11%, which means management is confident about future operations. APD has an attractive balance sheet, a solid yield, growing operations in a stable field and a long history of raising the dividend. Not a lot to dislike about this company. I'd like to buy shares in the mid-$80's or lower if I can. It's one I'm watching.
Wells Fargo & Company (WFC)
Wells Fargo & Company provides financial services through subsidiaries engaged in various businesses, mainly: wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance etc.
I initiated my stake in this high quality bank not long ago, and predicted that the dividend would be raised shortly after the dividend was raised already by 14% earlier this year. I didn't quite anticipate a raise as large as we got (20%!), but am pleasantly surprised and looking to load up a bit more on this bank. WFC had to issue a lot of stock to fund the all-stock deal to acquire Wachovia as I talked about recently, but WFC plans on buying back quite a bit of that as the Fed has recently approved of the dividend increases and share buybacks. Currently, WFC trades for a P/E of 11.06 with an entry yield of 3.2%. Even though WFC has popped a bit since I purchased my shares I still think there is a lot of value in this bank. I'm also looking at increasing my stakes in TD and BNS, two of the newer additions to my portfolio, as well as initiating a stake in Canada's largest bank - Royal Bank of Canada (RY). I think there is a lot of opportunity in the financial sector right now as investors are still shunning it after the recent stock market free fall and Great Recession.
Occidental Petroleum Corporation (OXY)
Occidental Petroleum Corporation is a multinational organization whose subsidiaries and affiliates operate in the oil and gas, chemical and midstream, marketing and other segments.
I'm still researching this one, but I like what I see so far. OXY currently trades for a P/E of 13.67 with an entry yield of 3.28%. The dividend growth has actually been outstanding. They have a 10-year DGR of 15.3%. The great thing is that the growth isn't slowing down. Their last dividend raise was a full 17%. Not bad. The balance sheet is attractive (as most major oil companies are) and their operations are relatively easy to understand and like. Oil isn't being made anymore, and it's a product that continues to decrease in supply and increase in demand. This bodes well for the medium-term. OXY has been considerably weak lately, down over 5% over the last 5 days. This is definitely one I'm watching right now.
So, that's my short watch list. Again, it's not all-encompassing, but it does give you an idea of where I'm looking to go over the next couple weeks. I'm also interested in RTN, MSFT, HRS, COP and LMT currently.
So, readers: what are you buying?
Full Disclosure: Long WFC, TD, BNS, RTN, HRS COP
Thanks for reading.
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