As part of my 2013 previews and predictions, I will focus on stocks to watch in the new year. Last year, I chose 7 growth names and 7 value names to focus on. This year, I am upping the number to 10 in each category to try to get a little more diversification and expand on the number of sectors each list can hit. In this article, I will focus on the second half of the value names. To be on this list, the company needs to be a solid dividend paying company. Companies that have a history of raising their dividends are viewed more favorably. I also have looked for companies that either have stock buybacks, or have decent growth forecasts. You don't normally think of a value stock as one that grows fast, which is why if I found a name offering more growth than another name in its space, it receives preference. Part one contained McDonald's (NYSE:MCD), Pfizer (NYSE:PFE), Philip Morris (NYSE:PM), AT&T (NYSE:T), and Waste Management (NYSE:WM). Here is the second half of the list, five value stocks for 2013.
In part one of this series, Philip Morris was one of my top picks because of its growth, dividend and buyback. For this list, I'm choosing another cigarette name, Lorillard, because it has a much higher dividend than Philip Morris, one of the highest in the space.
As of Thursday's close, Lorillard's yield was 5.21%, much higher than the 3.96% you'll get from Philip Morris. Additionally, the company's last dividend raise was for its first quarter dividend, so we could get a raise in the next month or two. But I'm not recommending Lorillard just because of the high dividend. You also get the 2nd most growth in this space, as I recently detailed in my Philip Morris article. Philip Morris has the buyback and higher growth, but for those looking for pure dividends, Lorillard is the way to go. Lorillard also trades for 13.07 times 2013 earnings, while Philip Morris trades for 14.78 times. I think both of these names can have good years, so for those looking for some diversification, you can own both rather than just one.
As I mentioned in my 2013 growth articles, I wasn't necessarily looking for names that had the highest growth, or in this case, the highest yields. I was also looking for names that were hoping for rebounds. While Chevron's stock was up about 5% in 2013, that lagged many of the US indices. Additionally, analysts expect the company's revenues to decline by 2.4% this year, before jumping 6.9% next year.
Chevron is on the list for a possible revenue rebound, as well as the very nice 3.28% dividend you are receiving. I was looking for a solid dividend play in the energy space, and Chevron meets the bill. What sold me on the name was the solid dividend increases over the past couple of years, as seen here. Just in the past two years, you've gone from $0.72 to $0.90 per quarter. That's a nice increase, and earns Chevron a spot on my 2013 list.
Intel was on my list last year at the beginning of the year, but I changed my opinion on the stock as the year went on. As Intel kept lowering its revenue forecast, and issued a separate revenue warning in September, the name became one of my best short recommendations. However, thanks to a new $6 billion debt raise, I am a bit more confident that Intel can continue its huge buyback plan at a decent rate. That buyback, combined with a juicy dividend yield, makes Intel a good name to be on this list for 2013.
Let's first start out with the dividend. Intel's yield as of Thursday's close was 4.22%, making it the highest yielding large cap tech stock. The yield is well above that of Microsoft (NASDAQ:MSFT), Cisco Systems (NASDAQ:CSCO), or any of the tech heavyweights. The second nice thing for this stock is the buyback. During the first nine months of 2012, Intel bought back $3.8 billion worth of its own shares. Over the last year, the diluted share count, used for EPS purposes, has declined from 5.34 billion to 5.153 billion. At the end of the third quarter, Intel had $6.3 billion left on its current buyback program.
The reason I was so bearish on Intel is that the company's margin forecast has led analysts to slash earnings estimates, despite the buyback. Falling net income means less money for dividends, and ultimately, for the buyback, but the debt raise has alleviated those fears. Also, I think analyst estimates have come down enough to where they are more reasonable, giving Intel a better chance to beat in 2013. Current estimates call for earnings to drop from $2.39 to $2.11 this year, with a continued decline to $1.94 next year. If Intel does about $2.00 next year, it could be enough to get the stock back to the $23 to $25 range, and when you add in the 4% plus yield, you could be looking at a pretty good return.
Johnson & Johnson (NYSE:JNJ):
There was a definite battle for this spot on my list between Johnson and Johnson and Procter & Gamble (NYSE:PG). Both have been solid dividend paying companies for a number of years, and on the face of it, JNJ's 3.45% yield was higher than PG's 3.26% yield.
But dividends aren't the only think I look at, as you know. In terms of 2013 expectations, Johnson & Johnson is expected to grow revenues by 7.2% and earnings per share by 7.9%. Procter & Gamble is expected to grow those numbers by 3.9% and 8.6% respectively, for the fiscal year ending June 2014. I'd rather go with the much higher revenue growth there, because the earnings per share difference isn't tremendous. The thing that cements JNJ on this list is valuation. JNJ currently trades for 12.89 times expected 2013 earnings, while PG trades for 16.03 times its fiscal 2014 earnings. That's a huge difference, and gives JNJ more value in my opinion.
I wanted to get one financial name on my list, and I think JPMorgan fits the bill very well. The financial giant has a nice 2.69% yield as of Thursday's close. Not only does JP Morgan have a much higher dividend than many of the other large cap financials (and some don't even pay a dividend currently), but they've been able to raise the dividend as well.
I also trust Jamie Dimon, and I think many others do as well. Some investors don't realize that the current $0.30 per quarter dividend isn't too far away from the $0.38 the company was paying before the financial crisis. The company's dividend is almost back to where it once was. Also, the company has paid that $0.30 now for four quarters, which means we could see a dividend raise with their next payment. A dividend raise would not only be good for shareholders, but it would show that this financial company is very strong. While the company may not double as some other financials could over the next year, this company provides more value than those, and it probably won't decline as much if these names are all hit again.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Author has no direct positions in any stocks mentioned, but has a position in SOXS, a 3 times levered ETF geared at shorting semiconductor names, including INTC, for a trade. Author will update position status in comments section.Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.