The Dow broke a record this past week by moving 400 points, four days in a row. Whenever markets show this kind of whipsaw action investors tend to shy from the fundamentals. Now more than ever, investors need to adhere to the basics. Some traders are trying to time the bottom, but as "investors" this is unnecessary. Investors are better off having a list of companies they are looking to buy but are not at a safe discount yet. Having a shopping list of well run companies makes it easier to find your bargains when the market panics.
Here are some blue chip companies with well established brands and international exposure. They have proven management and growing dividends that in all create safety and sustainability for investors. These stocks are great additions to your shopping list and a few are trading low enough for a position.
American Express (AXP): American Express is one of the most well run companies on our list. It has ever increasing exposure to the emerging middle class abroad. The company pays the lowest yield on the list at 1.6% and has increased it since 2003. It announced share repurchases earlier in the year and was one of the financials who did not cut its dividend during the last recession.
ConocoPhillips (COP): COP is trading just 30% over its book value. It has great management paired with a hefty yield of 4%. COP has really bounced back from its lows in 08' and has proven its profitability last year returning $11 billion in profits. It has solid fundamentals and the benefits that come with a potential rise in oil prices. Conoco is currently trading with a P/E of 8.30.
Coca Cola (KO): Coke is one of the most recognizable brands in the world. It has sales in almost every country. Its management has a long term plan to grow the company which is called "2020 Vision". As a defensive investor, it is always important to find management with their eyes on the horizon. Coke has a yield of 2.8% and has raised it consistently longer than many of us have been alive. Including dividends and share repurchases, Coke has returned billions to shareholders in recent years. Not to mention, it is Buffett's favorite holding.
Proctor and Gamble (PG): Proctor and Gamble is a true multinational. It has strong exposure overseas and is increasing market share in places like China and Russia. PG has been improving its efficiency since the recession and is heavily invested in emerging markets. It receives 58% from international sales. The company currently yields 3.4% and has raised its dividend 55 years straight.
McDonald's (MCD): McDonald's Jim Skinner is a fantastic CEO. His leadership has been proven by the success since he took over 7 years ago. The company has profited from restructuring under Skinner, but more importantly it has not stopped. McDonald's management is consistently adapting to a changing and increasingly international consumer. McDonald's receives over 2/3 of sales from overseas. Its P/E is a little high for me at 17. It might not have a margin of safety at the moment, but should certainly be on your shopping list. Its dividend yields 2.8% and has increased it every year since 76'.
PepsiCo (PEP): Pepsi, like Coke operates in the beverage industry. A very important distinction between the two, is Pepsi's snack business, Fritolay. Even Buffett, Coke's largest shareholder, has praised Fritolay saying "Fritolay is a fabulous business". Pepsi's beverage industry actually accounts for less than 50% of its total revenue. This diversification makes Pepsi less susceptible to sharp increases in costs. Pepsi's international sales account for about 50% of revenue. Its dividend yields 3.26% and has been raised 38 years in a row.
Exxon Mobil (XOM): Like COP, Exxon is Big Oil. But in this case, much bigger. Exxon has the largest market cap of any company traded on the NYSE. XOM has some of the highest oil production in its industry. This production coupled with its industry leading resource base makes XOM very attractive. Like the others, its management has a rich history of share repurchases. It currently yields 2.6% and has raised that dividend for over 25 years. The company faired better than most in the recent recession which can be attributed to its size, diversification, and solid financial position. It trades with a P/E of 10.20
General Electric (GE): GE is similar to PG in that it is increasing its focus on emerging markets. Over 50% of its total sales comes from overseas.The company has lower value metrics than most on the list including a P/B at 1.30. Its dividend yields 3.77% but had to be reduced during the recession. Its dividend is not as reliable as others on the list, but its payout ratio is not to high at 40%. GE has obviously gone through struggles in recent years but at this price, it is hard to overlook.
GE, COP, and XOM are the biggest bargains on the list. These are the companies I would consider initiating a position on while prices are this low. The others have more room to fall before they are at a definitive bargain, but they are all solid holdings if you already have a positition. If anything, they will let you sleep better at night.
Here is another article by SA Contributor "AssetInflation.com" with a different approach to similar Blue Chips.