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)

Per Morningstar:

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)

Per Morningstar:

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)

Per Morningstar:

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.

Photo Credit: FreeDigitalPhotos.net

Comments

  1. says

    Well I recently bought some LO, but I know that’s a pretty sizeable position for you. There really isn’t anything that looks like a really solid value play, but are trading much closer to fair value. I’m still interested in LMT although the debt bothers me some. I noticed HRS’s recent pullback so I might make a small addition there. If MSFT pulls back a little bit I’ll probably pick some up although I do have a put option open so I’ll have to see where that stands. XOM, CAT, APD, EMR, WFC are some decent plays.

    I’ve been much more active on the options while the markets have been on fire. I just wish I had made some more purchases in January but the markets barely even took a breather then.

  2. Larry says

    Another great post DM. Since you ask I recently bought some Sysco (SYY) while it’s not my favorite stock in my portfolio I wanted to add another dividend stock which pays during April (pay date not ex. div date), they’re much harder to find than Feb or March dividend stocks. There’s tons of great stocks for March. Even at this high price Sysco is still well over 3% yield too and it’s a stable stock which I like a lot. Anyway that’s my latest purchase and my next will likely just be an addition to another position I already own.

    • says

      Larry,

      Thanks for the kind words and I appreciate you stopping by.

      I like SYY, but I don’t love it. I’d be highly interested in increasing my position, as it’s currently by far my smallest allocation in my portfolio. I have concerns about the low margins and their high FCF payout ratio. Also, they seem to take the stance of absorbing some of the rising commodity costs to retain market share.

      On the other hand, they are the juggernaut in the food services supply space and I like the business model and yield. We’ll see.

      Thanks for sharing your thoughts!

      Best regards!

  3. says

    I honestly haven’t been looking closely at anything lately, mainly because I won’t have sufficient cash for a new purchase anytime soon. (My March savings will be allocated for non-investment purposes.) However, I will definitely be watching to see what you buy!

    • says

      Dividend Growth Machine,

      I hear you on the capital concerns. I’ve been there many times. I’ve been prudent lately with the market run-up, but work concerns are probably the bigger factor as to why I currently have more capital than usual.

      We’ll see what the market presents us over the next couple weeks. I’m quite surprised we haven’t at least seen a breather. I think we’re due for one.

      I’ll be anxiously awaiting to see what you buy as well.

      Take care!

  4. says

    Good question!

    I need to go through and recalculate buy prices throughout most of watch list, but I agree that HRS is looking fairly attractive.

    I would definitely add to my APD position, but I still have a buy price of $83. Need a slight pullback.

    Maybe INTC, I don’t know…

    I may still buy fixed income to top off allocations. Not sure yet.

    Cheers!

    • says

      Compounding Income,

      I hear you on INTC. That position is already larger than I’d like it to be or else I’d be buying as well. Big tech has some values. MSFT is up there too. Even Apple looks good if you’re a fan of the business and believe in their long-term prospects. IBM is also one to watch.

      I like that buy price on APD. It wouldn’t have to come down much for me to pull the trigger. I’d like to see a 5% haircut or so and I’d be good to go.

      Thanks for stopping by!

      Best wishes.

  5. says

    DM,

    I can’t find anything that I’m truly excited about. I have a fairly large cash position at the moment, but I’m not finding the opportunities that would cause me to make a move. Another earnings season is upon us so a few on my watch list my come down to where I would buy. One can hope…

    • says

      The Stoic,

      I don’t blame you on keeping a miserly fist on that cash. It’s hard to find anything to get excited about. I’m not overly excited about even the names I mentioned in the article. While I find all of them at acceptable valuations for the long-term, none are “steals”.

      Like I mentioned above, I do hope we get even a mild breather in the market. I think it’s due for some profit taking, and I’d be surprised if we don’t see a 5% pullback in the near-term.

      Best wishes!

  6. says

    hey DM, I saw your reply on my comment on your last post. Honestly COP is a great choice too. I just think OXY has a few minor things going for them. I actually look at forward P/E more then current P/E

    COP FPE: 9.95
    OXY FPE: 10.14 very slight advantage to COP

    COP 5 yr projected EPS growth: 2.33%
    OXY: 5.77% (which many consider grossly undervalued as OXY has made many cost saving strides in the last 2 years which will really pay off in the next 5-10 years)

    but really to me the most important factor is that COP is at nearly it’s all time high, while OXY is sitting at $78 with its all time high being $117ish if I remember correctly. and even more importantly during current market conditions OXY is off the 5% in 5 days as you mentioned but also off 10% since the start of February, where as the market has continually trucked higher.

    Those, among other things, make OXY the biggest holding in my portfolio at the moment.

    I also recently bought COH which you may not like as it doesn’t have many years of dividend history but they’ve made it clear to share holders in the recent 3 years that they plan to aggressively raise their dividend, and they have been selling off quite nicely in the last 6 months to a year. worth a look. they earned some of my hard saved cash.

    and the last thing I bought was CAT today. like you, i would like to get it at the 80 level but even sitting here at 86 it was too tempting for me. any bit of good news and this thing blasts off to 130-150 area. and im not willing to miss that for 6 bucks.

    • says

      the last thing i would mention is i like WFC as well but i work for one of the big 4 banks and am already grossly over allocated to financials (my company) due to stock options or else I’d be looking more closely at them as well!

    • says

      Took2Summit,

      Thanks for stopping by and sharing that great info on COP and OXY.

      I think both are fine choices for energy plays. I prefer the integrated oil majors like CVX, XOM and the like…but there is still attractive qualities in smaller plays like these.

      CAT is one I’m watching. It’s a cyclical stock, and I prefer more secular holdings when possible…but many think CAT can go up significantly from here, especially if China picks up again.

      Best wishes!

  7. says

    I’ve been on a little bit of a buying spree recently for various reasons. I grabbed AFL, WFC, and MSFT. I’m trying to enter into a position in KMI as well. I also sold two puts, one against LO and another against WFC.

    I might also go long on LO or OXY depending on available cash.

    Admittedly, I’m not super excited about any of these purchases because the market as a whole is overvalued at the moment. But I’m doing the best I can what what I’ve been given.

    • says

      MFIJ,

      Nice purchases there. I don’t think you went wrong with any of them. I think AFL represents some fairly strong value in the market currently, and I’d be buying more if I didn’t already own a healthy position in the company. My list above was a bit bound by my current allocation.

      We’ll see what happens with the broader market. Like I said above, I wouldn’t be surprised at all to see a minor correction in the 5% range or so, but there is a strange euphoria sweeping over investors right now. Best to steer clear of the hysteria and focus on fundamentals. Picking selective opportunities and being wary with capital is prudent right now.

      Best regards!

    • says

      Hi Wes,

      Thank you for being a loyal reader. As an author however, I would have preferred if you linked to the article from my blog, not what SeekingAlpha republished.. ;-)

      And unfortunately, i did not end up liking BBL ;-)

    • says

      wes mantooth,

      I’ve looked at BBL before. I like the yield and the dividend growth looks solid. I don’t currently have exposure to basic materials, but DGI pointed out some negative aspects of the business.

      Certainly there is barriers to entry in a business like this, but what kind of pricing power does BBL have other than to sell the commodities at the going rate of the market…which of course largely depend on the overall global economic state.

      It’s a company I go back and forth on, but am not totally sold right now.

      Is there a particular set of reasons you picked BBL?

      Best wishes.

    • says

      DM, I picked it because for several reasons. The starting yield is attractive, the DGR is high, and it’s been raising it consistently the last 10 years (it’s a Dividend Contender in David Fish’s list). Plus, like you, I too am light on the sector.

    • says

      wes mantooth,

      I can understand those reasons. Fundamentally, the stock looks great. The solid dividend, growth of the dividend and valuation all look pretty good. I’m just a bit leery of getting too heavy into commodities. Oil is my play on that, but I don’t have any direct exposure to a basic material producer like BBL or APD. I’ll keep my eye on BBL.

      Thanks for getting back to me on that. Much appreciated!

      Beset wishes!

  8. says

    I see a lot of people taling about HRS… the yield looks good but the predicted forward earnings growth is very anemic. -4% this year, 1% 2014 and 2% in 2015…

    • says

      fiveoh,

      Their earnings are affected by government spending/contracts. While these can be temporarily depressed by budget cuts du jour, long-term I think this company and other defense-oriented companies (RTN, GD, LMT) stand to do well.

      We will see. I like the low valuation, strong entry yield and great dividend growth. Management appears to be focused on delivering shareholder returns.

      Best regards!

  9. Anonymous says

    Hi DM, I’ve had WFC since about October and will keep it for the long term (I’m thinking forever, but we know how that goes). My recent purchase have been 70 TIS @ 23.68 and 90 AVA @ 33.67. I like the fundamentals in both and, while I bought a bit high, I feel these are solid purchases. Unfortunately, I’m at a point where I need to save for future purchases but hopefully when I’m ready It’ll be at a lower price point. –You can call me Retiring off Roth dividends. :)

    • says

      Anonymous,

      Thanks for stopping by.

      I haven’t heard of TIS before, but I do own AVA. I’m not aware of it ever going to $33.67 per share. Are you speaking of a stock on a different market?

      I hear you on saving capital for (hopefully) future cheaper prices. I try to deploy capital on a fairly regular basis, and as such will naturally catch lows and highs. My buying period will be relatively short (10 more years), so I have to maximize that cash while it’s available.

      Take care!

    • Anonymous says

      Hmmm, Good catch. I’ll have to take another close look at my Roth account. I show 1 share at $33.67 and 89 at $26.67 so I’m not quite sure what happened – both trades were the same day and I know I had placed a buy for 90 shares. Looks like I’ll need to call the company in the morning. I see the confirmation showing $26.67.

      As far as buying, I’d rather place larger trades and let use the dividends to lower my cost basis because I may leave the stocks to my children. Since it’s in my Roth, I’ll probably keep purchasing/adding for my account as long as I work at something – even if it’s a part time job every now and then.

    • Retiring off Roth dividends says

      An update on the one AVA share – the $7 commission was added to this one share, the 89 shows as no commission. So the actual purchase was really 90 @ $26.67. The person wasn’t sure why it was written that way – I did the math and confirmed.
      For TIS – It’s a manufacturer of tissue products serving the at-home tissue market. The Company produces bulk tissue paper, known as parent rolls, and convert parent rolls into finished products, including paper towels, bathroom tissue and paper napkins. It sells any remaining parent rolls to other converters who operate mainly in the away-from-home tissue converting business. The Company’s core customer base consists of dollar stores and other discount retailers.

    • says

      Retiring off Roth dividends,

      Glad to see the AVA share price got figured out. Always good to know exactly what your’re paying, and where the numbers came from.

      I’ll have to look at TIS. Not sure if it’s available on a U.S. exchange.

      Best wishes!

    • says

      Adam,

      Nice buys there. I think AFL is definitely a great play currently. Certainly concerns about the Yen weigh on it, but overall it’s a fantastic business.

      I’ll have to keep my eye on CAT.

      Thanks for sharing!

      Best wishes.

  10. says

    I like CAT, TD, WFC and RDS here. I have a full position of RDS so won’t add more for a while but am adding the other three. If I didn’t have such a big INTC stake I might look at another tech holding like CSCO. I was also looking at OXY as it seemed to be a good value but I’m content with the energy plays I have currently including CVX, COP, RDS, and KMI.

    • says

      All About Interest,

      Nice choices there. I like all of them as well.

      RDS is on my watch list. I don’t like the fact that the dividend was held static for so long, and the last raise ($0.02) was pretty anemic. That being said, the entry yield is among the largest in that space. They have a large presence in natural gas, which bodes well for the future.

      I think tech definitely has some value here. As mentioned above, there are some relatively cheap stocks in Big Tech. I looked at CSCO a while ago and it looked fairly solid. The dividend growth is starting to heat up and the businesses in networking and internet infrastructure is really interesting. IBM would be a solid choice here. I just wish the yield was a little higher.

      Best regards!

  11. says

    I’m building up some cash to make a larger purchase when I see a good deal. Still building.

    Saw your mention in USA Today. Cool! I don’t think they plugged your blog though?!?

    • says

      me myself and I,

      Nice catch on the USA Today article! I didn’t know if anyone would notice that. I’ll have to link it on the blog. I am disappointed my blog wasn’t mentioned, but it was very cool to be in an article with the likes of Mr. Money Mustache!

      I don’t blame you on building up cash. Very prudent move right now. Nothing that gets me real excited right now, but I wouldn’t mind buying some of the names mentioned above at current prices, or at slight dips.

      Thanks for stopping by!

      Best wishes.

    • says

      JF Baconnet,

      Nice job stacking the cash! I like that strategy. I’m certainly not against that when value is hard to come by.

      I think that one needs to be a bit more picky, and perhaps a larger margin of safety needs to be sought after in case of a large market dip. Either way, I’m definitely getting my shopping list together!

      Thanks for the support!

      Best regards.

  12. Chad says

    Recently bought AFL and WMT. Looking to get LO, WFC, or DPS (already have KO and PEP so why not go for the trifecta). Getting harder and harder to find value in this heated market.

    When the market gets like this, it’s usually better to pay on debt than to pay for over priced stocks. If the market keeps this up for much longer, I’ll probably just start overpaying on my mortgage. One less bill for me to pay in early retirement once it’s paid off.

    • says

      Chad,

      I like the moves. I think AFL is very cheap right now. WMT looks pretty solid as well. I’ll have to take another look at WMT. I haven’t bought it in quite some time, but EPS and dividends are both up significantly from my initial purchases.

      I hear you on paying down debt when the market isn’t giving you many solid opportunities. If I had a mortgage I’d definitely be looking into paying down that debt rather aggressively right now while still keeping some cash on hand for a pullback.

      Best wishes!

  13. says

    It’s definately getting harder to find good opportunities out there. I’m getting ready to make a purchase in the next couple weeks and I’m looking into Deere & Co. (DE), Lorilard (LO) or Wells Fargo (WFC). I’m from the midwest and grew up on a farm so I really like Deere, I’m interested in LO for the higher yield offered but need to check it out more, and while I was scared off from financials I believe banks like WFC or US Bank are well run and offer good value right now.

    • says

      DGSI,

      I haven’t looked at DE in a while. I’ll have to give it a good look.

      I hear you on being scared off financials after the recent implosion. I don’t blame you there. But, the key is diversification, as always, and focusing on quality. I think you’re doing a great job by focusing on WFC and USB! :)

      Best regards.

  14. says

    On the subject of buys… maybe we could talk about some growth stocks as well especially if in the accumulation phase.

    My goal is to live from dividend, but until then… my second goal is max total return. A mix of DGS and GS bought at great potentials and risks is my strategy.

    Just bought COH, sold puts on CAT and LO, pressing ESRX and TEVA.
    AFL, WFC, KMI, NOV are full position.

    Watching POT and AGU.
    On the canadian side for those interested in banks… my choice is HCG.

    • says

      grox01,

      I don’t blame anyone who looks outside the DGI world for investments, but I like to mainly stick to what I know. Growth stocks can make dividend growth stocks look boring, especially if you pick a high flier or two…but I like to focus on the income aspect of investing and I can think of no better way to maximize income right now.

      I do like many of the stocks you mention. AFL and KMI are large positions for me and I really like WFC and NOV. I’ll have to keep an eye on COH. It’s been very weak lately and the dividend growth has been rather impressive.

      I’ll have to take a look at HCG. I haven’t heard of it before.

  15. says

    Hey DM, I just bought AAPL as a value play. Solid yield, which I think is going higher soon, along with a stock which seems oversold w/ incredible fundamentals and significant upside if they come out with a new product soon which consumers like! What’s your take on AAPL ? Also, I am holding out and looking to buy some core dividend champions at a slightly lower valuation as I begin to build up my div stock portfolio. Also, I bought TGT lately and very bullish on it’s potential for future div growth!

    Also, thank you for your blog. I like it so much that you inspired me to start one! iheartdividends.blogspot.com

    Take care,
    JT

    • says

      JT,

      Thanks for stopping by.

      AAPL is certainly looking interesting at these levels. Fundamentally and quantitatively, it looks very solid. I’m just concerned about their ability to continue the innovation necessary to keep selling their products at the kind of margins they are used to receiving. Staying relevant is extremely important for a company like this.

      I like TGT. That’s one that is on my watch list. The growth was pretty solid last I looked, but the yield was a little low last time I circled around it. I’ll have to keep an eye on it.

      Congratulations on starting a blog! That’s really fantastic. I hope you find it as rewarding as I do. :)

      Best wishes!

    • says

      S.B.

      I definitely hear you. The market has had an absolutely stunning run from the lows of 2009 to now. It’s pretty incredible, and I honestly didn’t see that coming. I figured we’d still be seeing DOW 11,000 or so right now. Pretty crazy. That’s why I don’t try to market time or anticipate market moves. I’d fail epically.

      The picks are definitely slim, and one needs to be very cautious and prudent right now. I’ve been very slow with deploying cash, but I’m going to look to make a few purchases in April. We’ll see what the market is presenting me.

      Hope all is well!

      Best regards.

    • says

      Quality Stocks,

      I don’t blame you for the aversion to banks. Nothing wrong with that. That kind of reaction is natural after the the role that many of the banks played in the recent financial crisis. I think WFC was lumped in a bit with the rest of them, and they had to be in order to create a level playing field and a sense of security across the board. Of course, like I’ve said before I’m not qualified to completely analyze a bank and all it’s moving parts. That is something to be cautious of.

      APD is a solid company. It’s definitely on my watch list right now.

      Take care!

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