- Both stocks are near overbought territory.
- Both stocks are undervalued.
- Both companies have great cash flow stories to keep increasing the dividend into the future.
Investors have been let down of late by the momentum stocks such as Gilead (NASDAQ:GILD) and Facebook (NASDAQ:FB) and it was shown on Friday where the markets opened up really high only to close with a moderate gain. I always say to myself it doesn't matter what the market does between 09:30 and 16:00 but what does matter is how the market closes with respect to how it closed the previous day. The anxiety in Ukraine and economic weakness in China are what our markets are reacting off of. The Dow Jones Industrial Average Index rose 0.1% for the week while the S&P 500 dropped 0.5% and the Nasdaq was down 2.8%. It seems as if Wall Street is taking money out of the high flying momentum names and putting that money to work in the large cap names of the Dow.
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. (NASDAQ: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 12Feb14, Cisco reported second quarter 2014 earnings of $0.47 per share. This result was in-line with the consensus of the 35 analysts following the company and missed last year's 2 quarter results by 7.84%. 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 story. Additionally, during the past year, earnings growth has outpaced its historical five year growth rate.
The company goes ex-dividend on 01Apr14 with a $0.19 per share dividend which will be paid on 23Apr14 for a yield of 3.4%. In terms of news pertaining to the company this week, Spherix (SPEX) is suing the company over infringement of 11 patents. In addition, Cisco is announced they are going to invest $1 billion for the next two years for a new cloud computing service.
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 approaching overbought territory with a current value of 58.1 and upward trajectory, while the MACD chart below shows the black line just above the red line with increasing divergence bars, meaning there may be some bullish momentum on the stock price. I anticipate the stock to move up for now but only for a little bit longer and I wouldn't be initiating a new position here.
National-Oilwell Varco, Inc. (NYSE:NOV)
Varco provides equipment and components for oil and gas drilling and production; oilfield services; and supply chain integration services to the upstream oil and gas industry worldwide. On 31Jan14, Varco reported fourth quarter 2013 earnings of $1.56 per share. This result beat the $1.39 consensus of the 29 analysts covering the company and beat last year's fourth quarter results by 4.70%. Varco's PE ratio is among the lowest of any stock in the oil well services & equipment industry and signals that investors have not been willing to pay a premium for this company's business prospects, 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 12Mar14 with a $0.26 per share dividend which was paid on 28Mar14 for a yield of 1.3%. In terms of news pertaining to the company this week, there were no press releases issued during the week by the company.
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 approaching overbought territory with a current value of 61.24 and upward trajectory, while the MACD chart below shows the black line just crossed above the red line with increasing divergence bars, meaning there may be some bullish momentum on the stock price. I anticipate the stock to move up for now but only for a little bit longer and I wouldn't be initiating a new position here.
I've highlighted these names because they have all raised their dividend 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!
Disclosure: I am long CSCO, FB, GILD, NOV. 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.