Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

Is this the beginning of a correction? Stocks dropped dramatically on Friday the 24th, assisting the Dow Jones Industrial Average drop 3.5% on the week while the S&P500 and the Nasdaq logged a 2.6% and 1.7% loss on the week, respectively. I've been preaching for quite some time that value dividend stocks are the place to be, and on this day of drubbing (24Jan14) the Dow lost 1.96%, S&P500 lost 2.09% and Nasdaq lost 2.15% while my value dividend portfolio lost "only" 1.73%. I believe there will be more downside to come, and as long as you're in excellent dividend paying value stocks you should be fine. Covidien plc (COV) reported earnings before the bell on Friday and was up 1.77% on the day in the face of this S&P500 sell off of 2.09%; I would have loved to see what it would have been like if it was a positive day. One day earlier Union Pacific (also in my value dividend portfolio) reported outstanding earnings and was up 3.34% while the S&P500 was down 0.89%!

Call me a pessimistic optimist, but for now I will continue the course and purchase value stocks for my dividend portfolio. Value investing is the bread and butter of Warren Buffett's money-making strategy. The essence of value investing is basically purchasing a stock at less than market value based on certain metrics. My philosophy on dividend investing is to utilize the forward price to earnings ratio and use a one-year PEG ratio, along with a dividend. I don't necessarily look for a stock with a high yield because I like to see capital appreciation. Because the market may be correcting itself from all-time highs I maintain that it is difficult to find good stocks these days. That's why I'm highlighting a select set of excellent value companies in my dividend portfolio, which have had ex-dividend dates or paid out a dividend during this past week or early next week that people should place on their radar.

Cisco Systems, Inc. (CSCO)

Cisco designs, manufactures and sells internet protocol-based networking and other products related to the communications and information technology industry and provides services associated with these products and their use. On 13Nov13, Cisco reported first quarter 2014 earnings of $0.53 per share. This result beat the consensus of the 34 analysts following the company by $0.02 and beat last year's first quarter results by 10.42%.

The next earnings announcement is expected on 12Feb14. Cisco's PE ratio is below the communications equipment industry average and signals that investors are not willing to pay a premium for this stock, making it a value stock. Additionally, during the past year, earnings growth has outpaced its historical five year growth rate.

The company went ex-dividend on 02Jan14 with a $0.17 per share dividend which was paid on 22Jan14 for a yield of 3.06%. It was a pretty quiet week in terms of news pertaining to the company specifically with no press releases being issued.

Let's take a quick look at the technicals here to see if it can be bought at these levels or if a pullback is coming. As we can see, the relative strength index is near middle-ground territory with a current value of 51.36, while the MACD chart below shows the black line just crossing below the red line with decreasing divergence bars, meaning there may be some downward pressure on the stock price. I anticipate the stock to move down a little for now and I will not be buying it.

(click to enlarge)

Covidien plc

Covidien is engaged in the development, manufacture and sale of healthcare products for use in clinical and home settings. On 24Jan14, Covidien reported first quarter 2014 earnings of $1.00 per share. This result beat the $0.94 consensus of the 21 analysts covering the company and missed last year's first quarter results by 9.09%. The next earnings announcement is expected on 21Apr14. Covidien's PE ratio is below the medical equipment & supplies industry average and signals that investors are not willing to pay a premium for this stock, making it a value story. However, during the past year, earnings growth has lagged its historical five year growth rate.

The company went ex-dividend on 24Jan14 with a $0.32 per share dividend which will be paid on 20Feb14 for a yield of 1.88%. In terms of news pertaining to the company this week, the company reported fiscal first quarter earnings as mentioned earlier of $1.00 per share on revenue of $2.64 billion which beat analysts' estimates by $30 million. In other news the company said it is going to end the blood pressure device program, OneShot renal denervation, and will record a charge of $20-$25 million against earnings.

Let's take a quick look at the technicals here to see if it can be bought at these levels or if a pullback is coming. As we can see, the relative strength index is near middle-ground territory with a current value of 52.07, while the MACD chart below shows the black line below the red line with the divergence bars increasing in height, meaning there may be some bullish momentum coming (I believe this may be the case due to the strong earnings release). I anticipate the stock to move up a little for now but I will not be buying it because it shot up too high on the back of earnings.

(click to enlarge)

Williams-Sonoma, Inc. (WSM)

Williams-Sonoma is a specialty retailer of products for the home, operating stores under the name of Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation. On 20Nov13, Williams-Sonoma reported third quarter 2014 earnings of $0.58 per share. This result beat the $0.55 consensus of the 25 analysts covering the company and beat last year's third quarter results by 18.37%. Williams-Sonoma's PE ratio is below the furniture & fixtures industry average and signals that investors are not willing to pay a premium for this stock, making it a value story. Additionally, during the past year, earnings growth has outpaced its historical five year growth rate.

The company went ex-dividend on 22Jan14 with a $0.31 per share dividend which will be paid on 24Feb14 for a yield of 2.32%. It was a pretty quiet week in terms of news pertaining to the company specifically with no press releases being issued.

Let's take a quick look at the technicals here to see if it can be bought at these levels or if a pullback is coming. As we can see, the relative strength index is in oversold territory with a current value of 29.38. The MACD chart below shows the black line below the red line with the divergence bars increasing in height, meaning there may be some bullish momentum coming (I believe it was drastically oversold with other retail names but for no reason other than it being in the retail sector). I anticipate the stock to move up a little for now and will be buying it hand over fist because I believe it is "guilty by association".

(click to enlarge)

Conclusion

I've highlighted these names because they have all raised their dividend or initiated them within the past year and are poised to do so again in the coming years. It is important in this market to be able to hold onto companies which raise their dividend rates or initiated them, because it is a sign that the underlying company is doing well financially. The importance of these stocks I've highlighted is that they are value plays while the broader market may be correcting itself. I believe we are at a point in the market where we have to look for value.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: 1 Buying Opportunity And 2 Value Dividend Stocks To Put On Your Radar