We launched a new series of articles last week with the premise of building a dividend portfolio from scratch by leveraging the collective knowledge and opinions of the Seeking Alpha community. In parts 1 and 2, we highlighted the investment plan and strategy for the portfolio and parts 3-11 will highlight each sector in the S&P 500, including high-rated stocks within each sector to consider for the portfolio. Readers can either vote on the stocks we suggested for the portfolio or "write in" their own stocks to vote on. Majority will rule.
Below is a schedule of the entire series. Please make sure to "follow" us so that you will be notified when each new article is published.
- Part 1: Introduction
- Part 2: Establishing A Buy Zone and Watch List
- Part 3: Consumer Staples (3a) / "Buy Zones" (3b)
- Part 4: Utilities (4a) / "Buy Zones" (4b)
- Part 5: Healthcare (5a) / "Buy Zones" (5b)
- Part 6: Consumer Discretionary
- Part 7: Financials
- Part 8: Technology
- Part 9: Industrials
- Part 10: Materials
- Part 11: Energy
- Part 12: Unveiling the Portfolio
Picking Healthcare Stocks For The Portfolio
As you know, our goal is to build a watch list of great stocks by sector that we can use to build the portfolio over time (purchasing shares when the prices are right).
We suggested five great Healthcare stocks for folks to vote on in Part 5: Bristol-Myers Squibb (NYSE:BMY), Owens & Minor (NYSE:OMI), Johnson & Johnson (NYSE:JNJ), Baxter (NYSE:BAX), and Merck (NYSE:MRK). Readers also suggested some great "write-in" votes. As a matter of fact, there were 12 additional Healthcare stocks suggested (including several international stocks)!
Well, we tallied up the votes and the most popular stocks among the group were Johnson & Johnson and Baxter. The Honorable Mention awards go to Owens & Minor, Pfizer (NYSE:PFE), and AbbVie (NYSE:ABBV).
Let's put all 5 of these stocks on our watch list and patiently wait for their respective Buy Zones. Note that Abbott Labs (NYSE:ABT) and Medtronic (NYSE:MDT) were also popular "write-in" votes, but both of these stocks have a current yield below our 2.5% minimum.
Which Healthcare Stocks Are In The "Buy Zone?"
While the current Fed-induced rally has expanded P/E multiples across the board, the Healthcare sector has underperformed recently (primarily due to uncertainty around the Affordable Care Act). That said, several of our watch list stocks are creeping closer to their respective Buy Zones. Let's take a look at the current charts for each and compare where they trade in relation to their respective Buy Zones.
Johnson & Johnson currently trades 2.1% above its Buy Zone. Ideally, we would like to purchase the stock under $85.00 (which would equate to a forward P/E ratio around 16.0x and a forward yield over 3.00%).
Baxter is down almost 15% from its 52-week high and the stock currently trades in the Buy Zone!
Owens & Minor currently trades 4.5% above its Buy Zone. Ideally, we would like to purchase the stock under $33.00 (which would equate to a forward P/E ratio around 17.0x and a forward yield around 3.00%).
Pfizer currently trades 2.9% above its Buy Zone. Ideally, we would like to purchase the stock under $28.00 (which would equate to a forward P/E ratio around 13.0x and a forward yield around 3.50%).
AbbVie currently trades 6.0% above its Buy Zone. Ideally, we would like to purchase the stock under $43.00 (which would equate to a forward P/E ratio around 14.0x and a forward yield over 3.50%).
Of the watch list stocks highlighted above, BAX is the only one currently in the Buy Zone. As such, we will likely start positions in this stock in the coming days.
Dividend investing is a marathon, not a sprint. Identifying good stocks is easy... patiently waiting for the right price is the hard part.
We'll send around updates throughout the entire process so please follow along and participate as much as you can. The next sector on the agenda will be Consumer Discretionary. Please make sure to "follow" us so that you will be notified when each new article is published.
Disclosure: I am long OMI, JNJ, BAX. 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.