In our previous article analyzing the attributes and historical performance of the underlying holdings of the S&P 500 factor ETFs (SPLV for low volatility, SPHQ for high quality and SPHD for high yield), we identified the 12 stocks that the three funds hold in common.
For those seeking to dial down risk a bit, being held in common makes these 12 stocks preliminary prospects for a conservative equity income portfolio:
|(NYSE:JNJ)||Johnson & Johnson|
This article presents a variety of data points for those stocks, to help you decide if they make sense for you.
We currently own and have owned 4 of the stocks for a long time: LMT, JNJ, CVX and BAX.
Figure 1 shows S&P Capital IQ Ratings related to inclusion in SPLV (low volatility), SPHQ (high Quality) and SPHD (high dividend ):
They all have Beta below 1.00 (less volatile than the S&P 500). They all have B+ or better earnings and dividend quality rankings (above average). They all have materially higher yield than the S&P 500.
But what about other attributes?
They are not universally loved by analysts as Figure 2 shows.
S&P Capital IQ ranks 6 of the 12 as overvalued (Fair Value rank under 3), and gives 1 an outright sell (Stars rank 1); but Thomson/Reuters gives it a modestly Bullish rating of 7.8 - that is PAYX).
Thomson/Reuters StarMine ranks 1 an outright sell (but not the same one as S&P, which gives is an outperform rating - that is WM).
Value Line sees most of them as untimely (rank 4 or 5) and none of them as timely.
FirstCall views 4 of them as below average choices (rank of 3 or more).
The 5 with the most overall favorable without too much negative are: BAX, K, LMT, MCD and MO.
Figure 3 looks at the spread of Street analyst one-year price targets.
We see (in descending order) CVX, BAX, RSG, WM and LMT having the 5 highest average price gain expectations.
The 5 with the best low target prices versus the current market price from best to worst are: CVX, RSG, BAX, JNJ, and WM.
The 5 with the highest high targets from highest to lowest are: LMT, MO, BAX, CVX and 4 others all at 16%.
The five with the tightest spread from high to low target from tightest to least tight are: RSG, JNJ, WM, MCD and SO.
BAX , CVX and RSG are in three of the lists.
Figure 4 presents dividend growth and consistency data.
Considering dividend reliability, the 5 with the greatest number of years of continuous dividend payments with annual increases in descending order are: JNJ, MO, KMB, MCD, and CVX.
The 5 with the highest 5-year dividend growth rate from highest to lowest are: LMT, BAX, MCD, MO and CVX.
Figure 5 looks at some valuation metrics, the 5 with the lowest EV/EBITDA from lowest to highest are: CVX, RSG, K, WM, and LMT.
The 5 with the lowest PEG ratios from lowest to highest are: LMT, BAX, MO, CVX, and RSG.
Looking at the highest comprehensive growth scores (taking growth of revenue, earnings, dividend and book value together - based on the 1-20 score at the end of the Wright rating) from highest to lowest are: BAX and MCD at 10, K at 9, and CVX and MO at 8.
These stocks would be expected to underperform the S&P 500 in up markets and to outperform in down markets.
Figure 6 shows that over the past 10 years an equal weighted portfolio of these stocks outperformed the S&P 500.
The stocks outperformed the S&P 500 over 10 years, but underperformed over 5, 3 and 1 years. However, as this year has turned nervous, they are outperforming again over 3 months.
The chart and data table in Figure 6 illustrates that point.
Over the past 10 years, their worst 3 months, 1 year and 3 years were -16.09%, -20.26% and +0.72%; versus S&P 500, which generated -29.66%, -43.44% and -15.09%
Figure 7 takes a forward looking approach and shows how the same underperformance/outperformance holds up.
Using a scenario stress testing tool for hypothetical extreme conditions from RiXtrema, we see an expectation of the same type of relative performance.
In the positive scenarios, the 12 stocks underperform, and in the negative scenarios, the 12 stocks outperform.
The particular stress factors used in this test are shown in this table (Figure 8).
Note that these are not predictions of future events, but rather hypothetical scenarios designed to see how a portfolio would perform under simulated extreme conditions. It's a process similar to the stress testing banks have been undergoing since the 2008 crash.
These charts of price, earnings and dividends from Wright Investors' Service (from their Corporate Information site) presents useful visualization of company performance.
Based on data such as this and certain thematic factors, we own LMT, JNJ, CVX and BAX; and have done so for several years.
Disclosure: QVM has positions in BAX, CVX, JNJ, LMT as of the creation date of this article (April 12, 2014). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, and are not compensated by Seeking Alpha in any way relating to this article.
General Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.