A topic I have seen being discussed recently here is the old adage "sell in May and go away." Although I usually believe this to be somewhat accurate, I have recently added to several of my long positions and plan on holding them throughout the Summer.
These positions currently include PPG Industries (PPG), Caterpillar (CAT), and Verizon (VZ).
PPG Industries
I continue to be bullish PPG for its healthy dividend yield and stable growth in an improving automobile environment.
Auto and truck sales in North American from Ford (F) and General Motors (GM) have been relatively strong in recent months and the trends seem to be improving.
Although Europe seems to be lagging, PPG is still seeing significant growth in the U.S. and other emerging markets, propelling it recently to new 52 week highs.
PPG may stand to benefit further from increased production of not just autos, but all types of manufacturing that requires its type of coatings.
PPG is a large-cap company trading at about 13 times forward earnings. It has a PEG ratio of 1.05 and offers a dividend yield of around 2.25% at current share value.
Quarter-over-quarter sales were up 6.7% compared to fourth quarter 2011 with total sales of roughly 14.89 billion in 2011. PPG earnings rose from a $4.63 in profit during 2010 to $6.87 in 2011.
Headquartered in Pittsburgh, PPG is a leading diversified global manufacturer of paints, coatings, optical products, specialty materials and chemicals as well as glass and fiber glass.
It caters to a full spectrum of customers in industrial, transportation, consumer products and construction markets. PPG has more than 140 manufacturing facilities and equity affiliates that span more than 60 countries around the world.
PPG Industries has surprised analysts to the upside for the past four plus quarters in a row with an average of 2.3% in the past year. Expectations are for PPG to generate $2.35 in income this quarter.
PPG has still managed to exceed the S&P 500's performance by 6% in the past year and over 8% in the past 3 months. After the rally following earnings, PPG now leads the index by almost 10% over the last 30 days.
PPG has been moving in a strong bullish channel since late 2011. There was a bullish crossover of the 50 day moving average above the 200 day. PPG has not only maintained its position above those averages, but is solidity above its 50 and 200 day moving averages which currently stand at $94.28 and $84.95 respectively.
Look for both of those levels as points of support, but a breach of the 200 day average may indicate a change in trend.
Caterpillar
I continue to be bullish on Caterpillar because of its explosive growth potential and stable yield in an improving global economy.
Caterpillar is now up an impressive 500% since its 2009 lows. More recently, Caterpillar has exceeded earnings estimates in six of the last seven quarters. The lone miss was the June 2011 quarter reported in July of 2011.
I believe Caterpillar is currently fairly valued. It is in line with the industry average for its trailing price-to-earnings ratio of 12 and its forward price-to-earnings of ratio of around 10.
The price to book multiple shows the highest divergence from the industry average with Caterpillar trading at 4.4x or twice the 2.2x industry average. Price to sales shows a mild premium for the industry leader, with a 1x multiple compared to 0.7x industry average.
Price-to-sales shows a mild premium for Caterpillar, with a 1x multiple compared to 0.7x industry average. Caterpillar, with its volume in sales, makes up a very large portion of the industry at large. It should not be a surprise that the company is relatively close to the industry average for most of these metrics.
In late April, Caterpillar reported revenue of $15.9 billion for 1Q 2012. Analysts had been expecting the company to earn around $9.05 per share in 2012. Following the report the estimate moved higher to $9.48 and currently sits at $9.54. Similarly, 2013 estimates have jumped from $10.63 in December 2011 to the current level of $11.33.
Look for Caterpillar to continue to perform well around the globe as new machinery that was not replaced the last several years due to cost constraints are now upgraded to meet increasing global demand.
Verizon
I continue to be cautiously bullish on Verizon Communications because of an aggressive stance to become the industry leader. They are attempting to do this by acquiring more market share, more broadband spectrum, and more distributors and business partners.
The risk profile of Verizon has recently increased due to this aggressive behavior, which is a reason to have some slight concern.
Verizon has recently signed an agreement with cable companies Comcast (CMCSA), Time Warner Cable (TWC), Bright House, and Cox.
The golden goose in this purchase gives Verizon 122 Advanced Wireless Services broadband spectrum licensees encompassing areas with a populations of 259 million.
An interesting tidbit, though, is the FCC has not yet allowed the $3.6 billion dollar deal to go through. This also allows the cable companies to market Verizon products and vice versa.
The argument that Verizon has put forward to regulators in favor of the deal is that without the purchase, Verizon's network will run out of wireless spectrum by next year.
This fake ID may not work as the government nixed the AT&T and T-Mobile merger for reasons of unfair competition, and AT&T was up front about wanting the deal primarily to add to its spectrum reserves.
Undaunted by the potential blockage, Comcast and Verizon recently announced their plan to offer bundled services from each vendor to six new markets, in addition to the three markets in which the pair launched the service earlier in the year.
Verizon has also sold bundled services with Time Warner Cable, but has not done so with Bright House or Cox yet.
Indeed, smaller carrier T-Mobile has already filed a complaint against Verizon, claiming that much of the spectrum it already has goes unused.
If the FCC does decide to nix the deal, look for a buying opportunity in Verizon around the $36 range.
Closing
I look for these three names to potentially outperform during the Summer months. I will also enjoy the nice yields from stable payouts these blue chips also provide. My advice, keep it simple this Summer so you will be able to enjoy it.
