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Anand Chokkavelu, CFA names 10 stocks that you can buy right now in July. With the recent turbulence in the market, there are great companies with depressed valuations. This is not just bargain hunting to hold for a while and then sell. Rather, these are companies that you can hold for a while and see increased valuations and dividends.

This is another strategy that is timely at the moment. As Warren Buffet famously remarked, "Buy when the market is fearful and sell when the market is greedy." We certainly have an atmosphere of fear at present and finding great companies at a discount that you can hold is worth reviewing. We will not only backtest but continuously monitor the portfolio to see how prescient Anand is with this selections.

His 10 choices are:

  • Microsoft (MSFT)
  • National Presto (NPK)
  • Target (TGT)
  • Best Buy (BBY)
  • Bank of Hawaii (BOH)
  • Financial Institutions, Inc. (FISI)
  • Community Bank System, Inc. Com (CBU)
  • Canadian Imperial Bank of Commerce (CM)
  • General Motors (GM)
  • Teva Pharmaceuticals (TEVA)

The four banks are something of a concern but Anand states that they have good lending practices and have already taken their medicine and are looking up.

This is a broadly diversified North American stock portfolio and should provide an interesting contrast to some of the other portfolios. We are going to compare this with two other portfolios. There is no overlap and it will be interesting to see how each of them perform historically and going forward.

Firstly, the Fool's Matt Koppenheffer selected what he considered five stocks for long term dividend performance. All five have dividend yields well in excess of the S&P 500's and trade at reasonable valuations.

Company

Dividend Yield

Johnson & Johnson (JNJ) 3.4%
McDonald's (MCD) 3%
Kimberly-Clark (KMB) 4.1%
Sysco (SYY) 3.3%
Mattel (MAT) 3.5%

And an ETF dividend portfolio:

Asset

Fund in portfolio

REAL ESTATE ICF (iShares Cohen & Steers Realty Majors)
CASH CASH
FIXED INCOME TIP (iShares Barclays TIPS Bond)
Emerging Market VWO (Vanguard Emerging Markets Stock ETF)
US EQUITY DVY (iShares Dow Jones Select Dividend Index)
US EQUITY VIG (Vanguard Dividend Appreciation ETF)
INTERNATIONAL EQUITY IDV (iShares Dow Jones Intl Select Div Idx)
High Yield Bond HYG (iShares iBoxx $ High Yield Corporate Bd)
INTERNATIONAL BONDS EMB (iShares JPMorgan USD Emerg Markets Bond)

Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Fool's 5 Dividend Payers to Save your Portfolio 22% 203% 13% 63% 14% 69%
Retirement Income ETFs Strategic Asset Allocation Moderate 18% 190% 6% 30% 6% 26%
Retirement Income ETFs Tactical Asset Allocation Moderate 17% 180% 12% 96% 11% 80%
Fool's 10 Stocks To Buy July 2011 5% 30% 11% 32% 6% 16%

Three Month Chart

click to enlarge

One Year Chart Three Year Chart Five Year Chart

A bargain is always an attractive notion and when you combine that with blue chip names, then it seems especially compelling. However, the results do not confirm the intuition. We expect the short term returns to be poor because these are stocks that have been depressed. However, when you look further back, while the returns are in line with the lowest benchmark, the Sharpe index -- indicating the volatility or risk associated with these returns -- is lower than everything else -- indicating that better risk adjusted returns can be derived from the other portfolios.

We will continue to track this to see if the returns pop up as the stocks recover but, for now, this is a bargain worth passing up.

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: Author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 10 Stocks to Buy in July