My "Stock Universe" consists of stocks in my IRA portfolio plus stocks that are on my shopping list. The shopping list includes previous positions that were closed out because I believed the stocks had appreciated to the point that there were better values elsewhere--but stocks I would gladly own again at the right price. Also, the shopping list includes stocks that I have studied but not yet purchased, either because the price seems high or because I don't want to be overweight in a particular sector.
I have identified a target "buy" price for each stock. The Q1 2013 leg of the current bull market has left very few stocks close to my target buy price. It's tempting to forget about these "out of range" stocks, but the recent broad market advance is a good time for homework--some objective, dispassionate study to be prepared for any future pullbacks in price. During the bleak Q4 2008 and Q1 2009, it was tempting to wonder whether stock prices would ever recover. During the present extended bull market, it's easy to assume that stocks will never be cheap again. But...
"A decline in stocks is not a surprising event, it's a recurring event--as normal as frigid air in Minnesota. If you live in a cold climate, you expect freezing temperatures, so when your outdoor thermometer drops below zero, you don't think of this as the beginning of the next Ice Age. You put on your parka, throw salt on the walk, and remind yourself that by summertime it will be warm outside.
"A successful stockpicker has the same relationship with a drop in the market as a Minnesotan has with freezing weather. You know it's coming, and you're ready to ride it out, and when your favorite stocks go down with the rest, you jump at the chance to buy more." (From Beating the Street, by Peter Lynch, p. 46.)
For me, this means establishing some target buy prices and continually reviewing and updating those prices as situations change.
In previous articles I've covered the stocks in my retirement portfolio. As prices escalated, I have raised the cash percentage of the portfolio to 12.8% (which is high for me). Here's my common stock universe, with a target buy price, the current annual dividend, and what the target price would yield at the current dividend. The stocks are ranked according to the number of consecutive years they have raised their dividend. (For example, Diebold has increased its dividend every year since 1954.)
|Diebold, Inc. (DBD)||'54||28.75||1.15|
|Dover Corp. (DOV)||'56||46.67||1.40||3.0%|
|Genuine Parts Co. (GPC)||'57||71.67||2.15||3.0%|
|Procter & Gamble (PG)||'57||64.29||2.25||3.5%|
|Emerson Electric Co. (EMR)||'57||46.86||1.64||3.5%|
|3M Company (MMM)||'59||72.57||2.54||3.5%|
|Johnson & Johnson (JNJ)||'63||69.71||2.44||3.5%|
|Coca-Cola Co. (KO)||'63||32.00||1.12||3.0%|
|Illinois Tool Works Inc. (ITW)||'63||50.67||1.52||3.0%|
|RPM International (RPM)||'74||22.50||.90||4.0%|
|Kimberly-Clark Corp. (KMB)||'75||81.00||3.24||4.0%|
|Clorox Co. (CLX)||'77||73.14||2.56||3.5%|
|McDonald's Corp. (MCD)||'77||88.00||3.08||3.5%|
|Sysco Corp. (SYY)||'77||28.00||1.12||4.0%|
|Piedmont Natural Gas (PNY)||'80||27.56||1.24||4.5%|
|AFLAC Inc. (AFL)||'83||40.00||1.40||3.5%|
|McCormick & Co. (MKC)||'87||45.33||1.36||3.0%|
|National Retail Prop (NNN)||'90||31.60||1.58||5.0%|
|Realty Income Corp. (O)||'95||43.40||2.17||5.0%|
|PennantPark Inv Corp. (PNNT)||'96||10.67||1.12||10.5%|
|Enterprise Products Prt (EPD)||'97||52.80||2.64||5.0%|
|WP Carey Inc. (WPC)||'99||65.60||3.28||5.0%|
|Urstadt-Biddle Prop (UBA)||'99||20.00||1.00||5.0%|
|Plains All American (PAA)||'00||45.00||2.25||5.0%|
|Norfolk Southern Corp. (NSC)||'01||57.14||2.00||3.5%|
|Southern Co. (SO)||'02||44.00||1.98||4.5%|
|NuStar Energy LP (NS)||'02||46.10||4.38||9.5%|
AGL Resources Inc. (GAS)
|Natural Resource Prt (NRP)||'04||22.00||2.20||10.0%|
|General Mills Inc. (GIS)||'04||43.42||1.52||3.5%|
|Westar Energy Inc. (WR)||'04||27.20||1.36||5.0%|
|Starwood Property Tr (STWD)||'09||25.14||1.76||7.0%|
|Nucor Corp. (NUE)||'09||36.75||1.47||4.0%|
|Eaton Corp. PLC (ETN)||'10||56.00||1.68||3.0%|
|Linn Co. LLC (LNCO)||'10||36.23||3.08||8.5%|
|Intel Corp. (INTC)||'10||20.00||.90||4.5%|
|Bristol-Myers Squibb (BMY)||'10||28.00||1.40||5.0%|
|Prospect Capital Corp. (PSEC)||'10||10.56||1.32||12.5%|
|General Electric Co. (GE)||'11||19.00||.76||4.0%|
|Paychex Inc. (PAYX)||'11||26.40||1.32||5.0%|
|LTC Properties (LTC)||'12||37.20||1.86||5.0%|
|PPL Corp. (PPL)||'12||29.40||1.47||5.0%|
|Apple Inc. (AAPL)||'12||353.33||10.60||3.0%|
|Annaly Capital Mgt (NLY)||14.40||1.80||12.5%|
If a stock gets within 10% of the target buy price, I do more research to see if it is still a "buy" at that price or if the price needs to be adjusted.
This is presented not as a recommendation to buy any of these stocks, but rather as a suggestion for some possible stocks to study. Everyone's situation is different. Do your own due diligence.
Additional disclosure: As described in previous articles, I am also long these closed-end funds: BUI, NFJ, ETV, JLA and IGA, but the scope of this article is limited to common stocks (including two BDCs).