Mr. Market taking a Turn

Good old Mr. Market.  It has been an interesting last week plus, given the overall market condition lately.  Greece did not make their debt payment and it felt like the whole stock world shook from the news, as well as other macro events.  Thought I do enjoy seeing what is happening from this level, I enjoy it even more when my favorite dividend stocks become discounted throughout the process, yes, yes, even European and Oil companies included.  With that said there have been more stocks that have become more on sale recently that have caused my eyebrow(s) to drift up.  I use eyebrows plural simply because there are too many opportunities and too little capital with limited time I’ve had recently to really make moves out there.  I feel like I am almost back into the same position when I was itching to make a move but just haven’t in such a long time.  Heck, my last/most recent purchase was $1,500 into JNJ almost a month ago (outside of dividend reinvestment and 401K contributions).  I know partly is because I have been running on thin ice lately with very little cash in my account, but this has been from making many purchases into stocks and also achieving my other finance goals for 2015.   I’ll say this, Bert better kick start his goals on this 2nd half of the year, because I’ll be blowing him out of the water, hah, the traditional Italian vs the Jew, bring it Bert.  I digress… the lack of time with weddings I had over this July 4th holiday weekend – drum roll – I had 2 weddings that I was a groomsmen in, in back to back days in 2 different states, followed by a business trip I currently am still on in Houston.  Order of events: Thursday Rehearsal Dinner, Friday Wedding in Cleveland, Saturday Wedding in Chicago and Sunday flight to Houston for work through Thursday.  I am sick just typing that.  That has come to many high expenditures with flight, tux rental, suits, gifts, extra little items of the like – all worth it but is a reason why I haven’t been able to take charge of Mr. Market’s small correction as of late.

Mr. Market’s Stomach Ache

Talk about Mr. Market’s attitude, I feel it is because of the following:

1. Greece debt payment – no brainer here, this impacts the European businesses more so than anything, but has had a trickling effect into all international companies, as most are these days in order to stay competitive and reach customers normally not in the repertoire.

2. Oil swoon – This is still occurring and, heck, Mr. Market has punished even worse the oil companies in Europe with #1 item above.  Talk about a double smack, sorry Shell and Total (I own both and holy crap those yields are high)

3. The investing community – I feel with the above events, they continue to become more keen on what’s out there and what overvaluation potentially looks like as well, starting a slight sell off and a push down in stock prices.

4. Potential increase in interest rates – with even more time to pass – a rise in interest rates is still looming and is more than likely to happen than to not.  This would then cause the price to borrow for business to increase, causing higher expenditures to conduct normal business, thus placing pressure on earnings, valuation and ultimately, stock price.

What does this mean?

What does it mean when Mr. Market has a small stomach ache from events above?  What does it mean when there’s a hangover out there like I should have had after this weekend (but I’m Italian and never feel like that)?  Well, it’s opportunities for investors.  Us dividend investors even more specifically.  Such as, when you use our dividend stock screener tools, the push down in stock price causing investment yield to increase with the dividend amount remaining stable.  So if you had a threshold of over 2.50%, then a stock that traditionally has been around 2% is closer to the metric now – insert Norfolk Southern (now at approximately 2.7%!).  Or even another great flavor – Exxon Mobil – crushing over the 3.5% mark now, well above their 5 year average yield.

This also means it’s an opportunity to have cash aside.  While I will always recommend to make consistent investment purchases based on your valuation metrics on the companies you deem to have “strong value”, I know you could have sat on the sidelines the last 3-5 weeks and stock piled a few thousand in cash.  What could you have done with this cash?  At each 2-3% down pressure, add a position.  Heck, after that add a little more when it drops another 5%.  Create that position, and add more to the valuable company you bought if it continues to go down.  OR  if there is a stock you think is coming to the value you like it at – keep watching the events listed above to put more pressure downward.  You can’t predict that but your money has been “OK” to have on the sidelines if you’re holding cash.  I am jealous for all of those that are holding cash is really what I’m saying, kills me!  And who knows what Bert was thinking writing that Edgewell (EPC) stock analysis, the heck are you doing little man?  Would you rather invest into that or into Norfolk, IBM, JNJ or Proctor right now?  Weak Bert, weak.

What 5 stocks am I looking at from this?

I want to list out 5 stocks.  I want 5 stocks that I am ready to just layeth the smacketh down on (Thank you “ROCK” for letting me use that line).  Given my attitude of having strong yield over it’s 5 year average, share buy back plans, a stock I already own (I love re-upping on stocks, hence JNJ 3 different times) and a company that is fundamentally always going to produce strong results – I somehow was able to accomplish a 5 stock list.  See these 5 stocks in the ring, to see who will own the crown of my cash:

1. Norfolk Southern Co (NSC) – We have performed a stock analysis of this company and it has been a constant on our watch list.  Heck at that time of review it was trading over $100.  It is now at $87 or a 13% decline since then.  It has been on a downward trend, similar to most transportation stocks.  The yield is now over 2.7% and is much higher than the 5 year average of 2.30%.  Further, the P/E is roughly 13-14 depending on the EPS you use and a payout of below 40%.  I like this company and am waiting on transfers of cash to possibly purchase.

2. Kinder Morgan (KMI) – even with oil the way it is, I like management’s desire to keep increasing the dividend by approximately 10% per year and that the downward pressure on the stock has increased the yield to over 5%.  Further, they are a monster in the oil pipeline field and I recently met up with someone who works there and he seemed to be very happy about the company.  Additionally, and coincidentally, I am in here in Houston – and people are still happy as ever, let me tell you.

3. Johnson and Johnson (JNJ) – yes, they are back on the list.  How can you go wrong with an over 3% yielder, a stock that has hit into the $97’s and a dividend growth rate of over 7% and has historically been incredibly consistent?  Enough said for this dividend aristocrat.

4. Exxon Mobil (XOM) – It’s the first time I’ve ever talked about them.  They hit in the $81 range this past week and wow, I haven’t seen it down there in quite some time.  The last year it is down 20% approximately with a yield now over 3.50%, when historically they are at 2.60%, talk about opportunity.  Further, as Bert stated, XOM increased their dividend still this year, while Chevron, Shell and others remained/maintained their dividend with no increase this year.  I like them right now.

5. Canadian Imperial (CM) – They have increased their dividend quite a few times this year, 3 to be exact, also known as – EVERY QUARTER, from $1 to $1.03, to $1.06 and now at $1.09 (in Canadian currency), which is a growth rate of 9% using this method, so far this year.  I like this, a great big Canadian bank, and one of the 3 we did an analysis on late last year.  You could add a nice bank, who has dropped 5.3% the last 5 days.  Great dividend growth and presence, no doubt.

Though these are 5 listed above, don’t hesitate to start looking at stocks from the low yielding, high dividend growth rate category that I discussed a month or so ago.  Why look at them?  Well the normally low yield could be pressuring up a little bit higher now with a pull back in stocks, therefore, you can get a yield that actually is more “moderate” in terms with an abnormally, historically high dividend growth rate aka you cannot beat that sort of deal.  One example is GWW sporting approximately a 1.97% yield when at the time of my article, it had a 1.90% yield, though its only 7bps, that is actually quite a bit in such a short time frame, considering they trade over $230/share.  

Concluding Thoughts

Those are my 5 tickets that I’m currently thinking about purchasing at the store.  They fit in my portfolio currently with weightings that I’d like to have industries at.  However, my biggest desire to see what everyone else thinks of what Mr. Market is doing, what they are seeing and also – what is on their watch list that maybe some of us haven’t come across.  Also – What are your thoughts with the 5 listed above?  Think there are some blaring holes?  Please share, I would love the feedback and look forward to everyone’s thoughts, thanks!

-Lanny

P.S. This is much quicker in writing this one out, as I’m in a hotel at 11:15 at night in Houston.  I appreciate everyone working with me through this.

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31 thoughts on “Mr. Market taking a Turn

    • Investing Engineer,

      Appreciate the post and great point. I’ve also looked at BNS. More so – looking at the size of the institution and CM has played pretty well for me so far.

      -Lanny

      • Lanny,
        I have to agree with Pat, CM is not my favorite Canadian Bank. My favorite one at the moment is RY since it makes good money from wealth management and capital market. NA would be my second pick (smaller bank, higher volatility, but very good potential).
        If you look at dividend growth, all Canadian banks are attractive. It’s crucial to look more into their business model to understand their difference.
        I’ve covered the big 5 on seeking alpha last week, check it out, it will give you a Canadian point of view 🙂

        • DG,

          Always coming in hot with a response! I’ll go over and read your post. Very interesting – so you are big on RY right now and like the smaller market bank. I’ll take a look.

          -Lanny

  1. XOM looks quite interesting, Chevron too. For Canadian banks, I think any of the big 5 would be a good choice. As InvestingEngineer stated above, CWB, NA and LB might be worth to take a look too. CWB is mostly based in western Canada so may have higher exposure to the crude oil price.

    Sounds like a lot of traveling for you. Hopefully you’ll get to sleep on your own bed soon.

  2. Funny cause I just wrote a piece about 10 of my favorite growth stocks that are currently undervalued (will be published next Monday) and we only have JNJ in common. That means there’s A LOT of stocks at discount right now! Good buys to come for you!

    Cheers,

    Mike

  3. Euro is bracing for Grexit. They were talking about how Greece could be like Ireland, after 3 years of economy pullback, and they have gotten much better.

    The market is more worried about China at the moment, down >30% from it high. A correction is in play, the government freezes trading for some companies, fear is across the board. It is a confusing market right now.

    Also looking for cue from the nuclear deal with Iran to buy oil companies.

    • Vivianne,

      Thanks for your post. I like the confusion and can’t agree more about it. It would be nice to bring valuations back to a “normalized” point for us, the market’s train ride upward over the last 6 years has to start scratching it’s head. Thanks again for coming by!

      -Lanny

  4. Great watchlist, Lanny. Cant go wrong with any of those blue chip names. The market is bringing us some opportunity finally…good to see some red after so many months of constant climbing.

    Best wishes
    R2R

    • R2R,

      It’s funny how much we love the red! The market sprang back up a little bit, why doesn’t it just stay down?! Come on! Still very interesting to me and may have purchased one of the stocks above… we will have to see which one it was!

      Thanks again Roadmap, talk soon.

      -Lanny

  5. I am one of those holding cash, waiting, researching, and analyzing. This noise to me is barely a hiccup. I’d like to see the market take a proper dip, but honestly do not see it happening. The reason is because where else can you put your money and get a good return? It’s not in a savings account, it sure isn’t in bonds. Even all cash buyers in the REI sector have pulled back some. We’ll see how it all plays out. I’m more interested in seeing how China will be affected. While their market is in crash territory, they are still above the average from when the run started, so we’ll see.

    – HMB

    • HMB,

      Thanks for your comment. I like your viewpoint on the downturn not being over yet and wanting a proper dip. I wonder if the shutters in the water will continue to rift to shore and by shore, I mean an undervalued dividend growth stock opportunity. Thanks HMB, I appreciate your post!

      -Lanny

  6. I was just thinking the same thing… I need a watchlist!! Hopefully the market keeps going down. I would love about $10K to buy KMI, XOM, TRV, WFC, OHI and UNP. I like your list as well. Looking forward to see what you buy next.

    ADD

    • ADD,

      Nice — watch lists are always fun to have, based on what’s needed and what is becoming more of a value purchase out there. I am with you on 3 of those companies – XOM/KMI oil bundle would be fun!

      -Lanny

  7. Lanny,
    As a fellow CM shareholder I must admit I am happy with the payouts, and shocked how bad the Canadian Banks are being treated. Its like a one-sided fight in the market right now, and with poor reasoning behind it. I agree with the commenters above, they all remain an awesome play.
    As far as your other listings, they are straight $money$. I still rank UNP above NSC, but either move is a good decision that you will thank yourself for in the future.
    – Gremlin

    • DGremlin,

      I agree – they have been taking a beating in terms of stock price. I know the other Canadian banks look great as well, for some reason – I like my unexpected dividend increases throughout the year from CM, its been exciting to own them to say the least.

      Also – I know a lot of others like UNP above NSC. I was looking forward to owning a transportation stock in general. I like NSC’s yield in comparison to the historical yield they have much better than UNP however.

      -Lanny

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