Sunday, June 8, 2014

Stock Watchlist: June 2014

I have a check sent out to my broker which should arrive on Thursday of the coming week. The account already has some cash ready for opportunities. I have had difficulty finding stocks that are of good value this month. I plan to keep some of my brokerage account in cash. I am targeting 5-10% in cash unless I can find a good value company.

For now, Target (TGT) appears to be quite attractively valued, but I missed most of the opportunity a couple days ago. Also I am too heavy on retail with ROST and TJX and PETM. PETM has jumped up quite a bit since my last purchase, since it was so oversold. ROST and TJX are around the same price as I purchase them last but I am seeing a slight momentum going forward. I think ROST, PETM, and TJX are still good deals with strong balance sheets but I do not want to add anymore to them since I already have a core position. I also do not want to expand positions in low yielding companies. This desire also removes Visa from my list of stocks.

Aflac (AFL) is also attractively priced at the moment. I also feel Wells Fargo (WFC) is a decent stock right now. However I do not like insurance and banks in my portfolio for volatility reasons. I prefer to buy these stocks at a severe market correction when their yields spike and then sell when they return back to market level.

I am also considering adding even more to Philip Morris (PM) and Kinder Morgan Inc (KMI) but my positions are already so large compared to everything else. I would like to Altria (MO) but the stock is much more overpriced compared to PM. Similar story with LO. I probably will supplement a couple shares this month. My stock trade fees are $0 until September so I am not worried about trading small transactions (bad habit to be honest).

I have also been eyeing utility stocks like ED and WEC and NEE which have recently become cheaper, but I plan to allocate sources to utilities later on this year. I prefer putting high yielders in my Roth IRA and am more focused on setting up my Taxable portfolio. I have a Roth IRA being converted from Vanguard indexes to a brokerage right now.

The stocks I am eyeballing now for purchase are WMT, PG, MCD, and CVX. I like PG and MCD since they are conservative, have decently high dividends, and are resistant during a recession. MCD has had better returns in the past than PG, but lately MCD has been stalling around the 94-100$ mark. MCD's momentum has started to decrease with its latest dividend increase as well. Of the four, I think PG is a little expensive since its PE>20, but then again PG is usually overpriced at this mark. I have a pet peeve for PEs over 20 though. I think CVX is slightly overpriced compared to its history but the yield makes it appealing. CVX also has the highest volatility of the four.

Below are graphs showing the 10 year and 2 year plots of the 3 stocks. There are Bollinger bands around the stock price as well as the PE and Yield. Notice how the stocks are all quite expensive at the moment.

Walmart: The stock took a dip a couple days ago. I bought a small start in this company during that dip. The PE is around 16 with a appreciable yield of 2.49%. The beta is low at 0.46 and this stock is a dividend champion. Walmart has shown that it does well during a recession.

Procter & Gamble: The stock is quite unexciting. Past returns of PG including dividends are not very impressive. However, the company has strong fundamentals that operate very well during recessions. The stock is a little expensive right now with a PE of 21.6, but the dividend is high at 3.21%. Before the crash of 2009, PG hovered around 20-25 PE so this PE range isn't abnormal. The high dividend yield compared to other stocks makes it still valuable. The stock carries a low beta of 0.42. When the market goes down, one can be quite confident PG will continue paying quarterly dividends like Walmart.

McDonald: 3.18% yield at 18.50 PE. Not much to say here about the company. Solid dividend stock. It actually proceeded past 2008-2009 as if nothing happened... The price is at a triple peak if that means anything to data analysts. The beta is really low at 0.30, like a utility stock. MCD recently payed a dividend. The dividend hike has been reported to be 5% which is quite low. I don't have much expectation for MCD to grow much more than it already has, but I would like to hold it for its dividend and solid business model.

Chevron: The lowest PE of the four. Oil usually has a lower PE. Chevron is cheaper than XOM. The PE is currently 12.09 with a dividend of 3.45% which beats XOM's yield of 2.72%. The beta is around 1 which I expect from a big oil company. CVX had a recent dip but is climbing back up. In the large scheme of things, I would be more willing to dollar cost average than time the market. I do not have anything in CVX at the moment, which is why I put this stock on my radar list. I think it will pair very well with COP in my portfolio.

In summary I feel that the market at this point in time is very expensive. Stocks are hard to find with decent yield and PE. The stocks listed here show what crumbs I could find in the dividend champions list. I am still building the core of my portfolio so these stocks are important. I am favoring WMT and MCD here, with CVX being a 2nd priority, and PG being a 3rd priority (since I already hold some PG and its got a PE>20 and it's performed really slowly over the last 10 years).

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