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Norman Tweed
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Retiree interested in stocks and financial instruments, especially dividend producing stocks. In the 20th century, I was an electrical engineer with Dominion Resources. I use a dividend growth investment style. Quick rules of thumb for complex questions, like fair value p/e using the Gordon... More
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  • Ross Stores (ROST)-Bargains on the rack



    Back to school is now upon us in July. Many high schools start fall football practice August 1. The new look this year is partially dictated by new school dress codes. Demand for polos, capris, skirts, skorts or jumpers based on school uniform catalogues is going up this year. How will middle income people buy the newly required clothes? Ross Stores has the answer! Their Dress for Less and dds Discounts stores are ready. What will the parents do to dress themselves at school functions? Again Ross Stores has the answer, targeting value conscious men and women between the ages of 25 and 54 in middle-to-upper middle income households. The company offers brand name and designer merchandise at low everyday prices, below department and specialty stores.


    Now lets look at earnings. Earnings Projections (First Call)


                                    Year                                               Earnings per share













    Notice that growth in 2011 is projected to be 30%. Growth in 2012 is projected to be 15.7%. Growth for the entire period is projected to be 18%. The expected 5 year annual growth rate is projected to be 32.7%. The trailing p/e is 15.6, while forward p/e is 13.9. The dividend yield is small at 1.14%. However, ROST is a Dividend Contender with 17 consecutive years of dividend increases, a 45.5% dividend growth rate last year and a 25% 5-year dividend growth rate. The low p/e is more than justified by the earnings growth projections and yield + dividend growth rate.


    How has the stock done from a price appreciation standpoint? The stock is up 23.57% from the beginning of the year. Since the trough of $23.65 in November 2008, the stock has climbed to $78.16. This is a growth of 48.95% per year. This is a mid-cap company with 9.14 billion market cap, about to become a large cap company. Growth since 2000 has been from $6.35 to $78.16 or 25.6% per year. I like the price chart!


    This stock is a retailer and this can be a very cyclical industry. What would be a good price? I have my order in for $70. It hit that price between March and April this year. It is a seasonal stock hitting a low in August and climbing from September to the end of the year. If you're going to have to buy new clothes, why not get some return by owning the store

    Jul 23 3:27 PM | Link | Comment!
  • Buy INTC @ $20

    Buy INTC @ $20


    The current market swoon has many causes—European Union debt crisis, Asian contagion, US budget impasse and possible default on sovereign debt and summer doldrums. This usually means the market will be under stress and some good buys may appear. I require 4% initial yield on dividend growth stocks. INTC has raised it's dividend again to $0.21 per quarter with the next ex-dividend date 8/04/11. In order to meet my criteria, it must drop to $21 as it did on 6/27/2011 interday. With the extreme volatility in the market, I believe it could drop to $20 in the next 2 months, especially after the dividend ex date.


    Why is INTC such a good buy?

    • It is considered one of the tech dinosaurs along with CSCO and MSFT.

    • There is rumor that they are not competitive in the mobile phone market.

    • Goldman Sachs has issued a price target of $20.

    • INTC has developed 3D technology in chip cores and is working on new foundaries, perhaps to take one AAPL's business as they migrate from Samsung



    INTC Earnings by Year (Source First Call)


    YearEarnings Per Share










    Growth for 2012 is 4.37%. Five year projected growth 20.1% per year.

    4% yield price = $21, while 4.2% yield price is $20.


    There is the cyclical play for this stock. Since 1997, this stock has been cyclical with an average price of $20. It was possible to buy around $18 and sell around $24 several times during the past 10 years.

    This summer's swoon is only a compressed up version of that cycle. I believe we are in a time of p/e multiple compression, as evidenced by growing yields on dividend growth stocks, including INTC. The yield on Dividend Challenger INTC (9 years of consecutive dividend increases) is currently 3.79% with a 1 year dividend growth rate of 12.5% and a 5 year dividend growth rate of 14.5%. The current p/e of 10.2 is more than justified by the fundamentals.




    I believe that there will be a chance to buy this great stock at the bargain basement price of $20 this summer.

    Jul 12 11:00 AM | Link | 2 Comments
  • You deserve a break today with MCD



    Now that the summer pullback has started, defensive stocks are in vogue. One of the best of bread in the consumer services sector is MCD. Not only do they have a large lead in US markets, they also are challenging their major competition in Asia—YUM and SBUX. From the standpoint of resistance to price depreciation and persistance in dividend increase, MCD is one of the best in the consumer services sector.


    Projected earnings (First Call) for the period 2010-2013 are as follows:



    Annual Earnings Per Share










    The percentage growth for next year is 9.39%. The five year expected annual earnings per share growth rate is 16.8% vs. projected industry growth rate of 12.6%. The current yield is 2.97% with a trailing p/e of 17.5. MCD is a Dividend Champion with 34 consecutive years of dividend increases. It has a 5 year annual dividend growth rate of 27.5%. The yield + 5 year dividend growth rate more than justify the 17.5 current p/e. I believe the stock is currently fairly priced.


    During this summer's market pullback, stocks will be on sale and I believe, like the healthcare and telecommunications sectors, consumer cyclical stocks will fall in price approaching 4% yield. For MCD to do that it will take a price of $61. However, MCD historically announces their dividend increase around the first day of December. Therefore, depending upon one's anticipation of that dividend increase, it would be prudent to purchase MCD at a higher price based on current $2.44 dividend, say 3.5% rather than 4% yield. A price of $69.71 would not be bad for this stock, especially when the market is falling. One look at the price chart during this past crash in 2008, shows that this stock should hold up during the next crash.



    I remember when the first McDonald’s Golden Arches opened in our town back in the 1950s. The 15 cent hamburger put all the soda fountain 50s burgers to shame and the lines grew into the streets. It may happen in Asia today.

    Jun 25 9:55 AM | Link | Comment!
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