Surprising title and article, right? I would be stunned to see a watch list, as well, if I were a reader, given the stock market has continued to hit highs. Just when you think they are heading for a few days in a row of red, the rug gets taken from underneath you. Bert and I have had endless conversations over the last week and it's time to talk about what entities are on my radar. What companies are out there that somehow have undervaluation written somewhere on them? Let's dive in and see.
Intro to the watch list
It's been quite some time that I've written about what or who is on my radar. Ever since I employed my tax strategy, I know individuals think that I am unable to purchase stock. FALSE! I will say - I am sitting on enough capital to make quite a few significant purchases, still, even with contributing to the maximum for the 401(k) and Health Savings Account (HSA). However, I digress, and want the readers to know I still have tricks in my pocket and still perform research just as often as I ever have. The problem is - the market has been very difficult with investors who purchase undervalued dividend stocks. When I'm performing my screener - I want stocks that have a forward P/E below 18, payout ratio below 60%, dividend growth for over 5 years, as well as a business that is easy to understand. Additionally, I want those entities that I already had in my portfolio to make my life and reading pleasure a little easier. Who wants to read additional 10-Ks, press releases and 10-Qs if you don't have to? I already read enough of that crap for my own job... ha ha. Without further ado. The stocks on my watch list.
Watch list stocks
Pfizer (NYSE:PFE) - Based on August 3rd's closing price of $35.29, Pfizer is coming back down to real levels. The dividend yield is at 3.40% and is just a tad lower than my overall portfolio. I already own them, and have owned them for years. However, I wouldn't mind having one of those "larger" positions in my portfolio. They've been growing their dividend for at least 5 years with the last increase at approximately 7.14% - which is awesome. Further, based on forward earnings, I am calculating out a price to earnings (P/E) ratio of 14.40. This then places the payout ratio at roughly 49% (we now know how important this metric is to us dividend investors). In my eyes - the P/E is low, the yield is above average, above the S&P yield, the payout ratio is right in the middle and they have the track record plus room to grow. Further, they are looking to grow as a business and are always going to be in pantries and healthcare related entities. However, I wouldn't mind seeing the yield at 3.50%, therefore, mid-to-low $34s is where I'd strongly consider them.
Target Corp. (NYSE:TGT) - Similar approach above, based on the close price of $74.10, Target is back in my shooting range. The dividend yield is "safely" at 3.24% (almost at 3.25%!) and is about 1 full percentage above the S&P 500 yield. Further, the P/E ratio based on forward expected earnings is 14.42, definitely a great sign of undervaluation. In addition - who doesn't love shopping and just browsing at Target?! I know the lady loves just simply walking through, and yes, she does own a Red card. I know Bert knows what I'm talking about. Also - this was the last monster purchase I made back in June and I wouldn't hesitate to checkout some more of them. They are a dividend aristocrat, have grown their dividend for 40+ years and recently had an increase of ALSO 7.14% - taking a note from Pfizer or something? The payout ratio also rounds out to 47% and is in that sweet spot I like. To conclude - an above average yield, already own them, low P/E ratio, great payout ratio and it's a great/easy to understand business. I'd like them to be in that $72.50 range as of right now.
T. Rowe Price (NASDAQ:TROW) - Back when Bert and I first purchased them, it was great timing. Well, the timing appears to be coming back to us potentially, as the close price is at $69.10. Another dividend aristocrat with a long as heck growth history, they are now sporting a P/E ratio of 16.37 based on forward earnings. Not as undervalued based on the Pfizer and Target above, but they are close and they are below the average P/E for the S&P 500. Further, the yield is at roughly 3.13%, not as great (again) as the other two, but above 90 basis points above the S&P 500 yield with a payout ratio of 51.18%. I had invested $3,130 into them in the first swing and a $1,750 purchase would be nice here to inch closer to that $5K total investment. If they were to hit into the $67s, my wheels will definitely start turning.
Watch list summary
With three strong dividend players on the watch list above, it's hard to pick which is the best here. Now, I am not saying that these are no-brainers above, but if you really wanted to deploy any capital - the three stocks on the watch list wouldn't be "bad" moves. They are undervalued in the industry and in the overall market. They have above average metrics as it relates to yield. Their dividends are safe and they have the track record of increasing those bad boys. Out of all three above, I am very enticed by Pfizer. My sorry ass bought them back when they were at $14 or so per share, so obviously I've had the run up in price, but they are still undervalued right now. There are a few smaller entities that are on my radar, such as Flower Foods (NYSE:FLO), which I love in the low $17 and even Canadian Imperial (NYSE:CM), which I already own quite the load of. However, these 3 above I would love to add to my position first, but I am not opposed to these other two.
What do you think of the stocks on the watch list? Think they are undervalued? Would you buy them? What about the other 2 mentioned in the summary? Waiting to make a move, hoarding cash or are you buying? Please post and I cannot wait to read what you have to say! Thank you for coming by, as always.