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2011 has been the year of dividend investors. The old-n-good Dow 10 strategy (where one picks and holds the top 10 dividend stocks in the Dow Jones index) significantly outperformed the market. I think investing in dividend stocks is one of the safest ways to achieve long-term success in the stock markets. Dividend stocks have a tendency to be ignored by investors. However, when we look at the markets over a long-term horizon, a significant portion of the returns are due to the dividends. The dividends can also provide a safety cushion against market downturns.

I have a natural tendency to go against the crowd. If a stock is overbought, I rate it as a sell. On the contrary, whenever a stock is oversold, it appears as a short-term deal to me. At least I believe that oversold stocks should not be sold while they are in this territory. Investors have a tendency to panic when their stocks show a strong negative performance for a short period. Therefore, these stocks end up in the oversold territory. Based on the Relative Strength Index [RSI] indicator, I noticed 4 high-dividend stocks that are highly oversold. All of these stocks have an RSI index of below 30. They also offer a yield of above 2%, and are priced with trailing P/E ratios below 20.

Based on my FED+ valuation model above, I determined the fair value of the following oversold stocks. I have analyzed these stocks from a fundamental perspective, and applied the O-Metrix grading system where applicable:



Payout Ratio



My Take

Exelon Corporation (NYSE:EXC)




$33 - $54


Constellation Energy (NYSE:CEG)




$26- $65


National Fuel Gas (NYSE:NFG)




$39 - $61

Speculative Buy

Amerigas Partners (NYSE:APU)




$40 - $46


Data obtained from Finviz/Morningstar and it is current as of January 17. You can download O-Metrix calculator here.

Exelon Corporation lost nearly 8% in 2012, and the stock is trading 12% lower than its 52-week high. Exelon is a diversified utility company that is primarily engaged in the electricity generation business. The Illinois-based company provides electricity to over 5.5 million customers in Illinois and Pennsylvania.

(Click charts to expand)

Based on 0% growth estimate, it has a pretty low O-Metrix score of 2.02. My Fed+ fair value range for the company is $33 - $54. Analysts have a mean target price of $46, implying near 15% upside potential. While the stock is not the best among the utilities, it is in the oversold territory. It is probably not the right time to sell this stock. Therefore, I rate it as a hold.

Constellation Energy lost near 9% in 2012, and the stock is trading 11% lower than its 52-week high. Founded in 1906, the company with headquarters in Baltimore, is among the oldest electricity providers in the market. Constellation also operates across the Canadian border. Its customer base includes both residential households and industrial customers.

Based on 4% growth estimate, it has a pretty low O-Metrix score of 2. My Fed+ fair value range for the company is $26 - $65. The stock has done well in the last year, returning near 20%, but it lost its mojo, recently. Similar to Exelon, Constellation Energy is in the oversold territory, and it is too late to sell. Therefore, I rate it as a hold for the moment.

National Fuel Gas Company lost near 11% in 2012, and the stock is trading 34% lower than its 52-week high. National Fuel Gas is a diversified utility company, which is primarily involved in natural gas discovery, transmission and retail services. As of September 2011, the company has proved natural gas reserves of near 675 billion cubic feet.

Based on 4.3% growth estimate, it has a pretty low O-Metrix score of 2.38. My Fed+ fair value range for the company is $39 - $61. While the stock looks fairly priced, analysts have a mean target price of $71. I think NFG could be a good speculative buy to play the recovery in natural gas prices. Therefore, I rate it as a speculative buy.

Amerigas Partners LP lost near 10% in 2012, and the stock is trading 15% lower than its 52-week high. Amerigas is involved in the propane gas business. The company is among the leading retail and wholesale distributors of propane gas in the U.S. I think the propane gas business has a good potential for long-term growth. The company recently completed a deal to acquire Energy Transfer Partners' propane unit (NYSE:ETP) for $2.8 billion. ETP also operates in the natural gas business, primarily as a pipeline transmitter. Therefore, the acquisition is likely to help both companies concentrate on their core businesses.

Based on 11% growth estimate, it has an above average O-Metrix score of 5.82. My Fed+ fair value range for the company is $40 - $46. Amerigas is also a nifty dividend payer with a yield of 7.2%. The company has $5.92 of cash and equivalents at the balance sheet. From a technical perspective, the stock has a limited downside potential. Looking at the chart, one can see that $40 is a strong support level. The stock also underperformed other utility companies in the last year. Therefore, I rate Amerigas as a buy for 2012.

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