Watch list for August 2014

The following are some of the stocks that are on my watch list for August 2014. These are stocks and sectors that I don’t have a position in and would like to initiate one soon depending on valuations.

Pepsi (PEP)

PEP has a strong brand portfolio of sodas, snacks and juices that enables it to post consistent and reliable growth. As the consumption of sodas decline, PEP has other products to offset the decline in revenue and profits. The results of the latest quarter showed an increase in the snacks sector which helped it offset the decline in soda consumption.
The stock currently yields 2.9% with a quarterly dividend of $0.65/share. The stock currently trades at a P/E of over 20 which is higher than its 5 year average of 17.2. The stock has had a great run in the last 6 month from around $77 to about $90. Morningstar has rated the stock as 3 stars with a fair value estimate of $89.00. Looking to initiate a position in the stock soon especially if it declines from its current price.

Coca Cola (KO)

KO is pretty similar to PEP, but doesn’t have a strong portfolio of snacks like PEP. That is one reason the company had results that did not meet expectations this quarter. The stock is down close to 5% since the results last week and is at a 1 month low.
The stock currently yields 3.0% with a quarterly dividend of $0.31/share. The stock currently trades at a P/E of over 21 which is higher than its 5 year average of 18.3. Morningstar has rated the stock as 4 stars with a fair value estimate of $44.00. But I still prefer PEP over KO because of the diversity of products that is enjoyed by PEP. Soda consumption is similar to tobacco that is going to decline over a period of time. Hence the company has to diversify to offset the declines and PEP is better positioned to do so. But that doesn’t mean that KO is going down the drain. The stock is still a solid dividend payer with long-term growth ahead.

Clorox (CLX)

Clorox has a stable set of brands that bring in increasing revenue and profits each quarter/year. Its EPS has increased over the past few years consistently in spite of the company not buying back shares the last couple of years.
The stock currently yields 3.34% with a quarterly dividend of $0.74/share. The stock currently trades at a P/E of 20.4 which is higher than its 5 year average of 19.1. Morningstar has rated the stock as 4 stars with a fair value estimate of $96.00.

Visa (V)

All three stocks mentioned above fall in the category of low growth and reasonable yield/reasonable dividend growth stock. All three are mature stocks that have been paying and increasing dividends for several years.
V offers low yield right now, but has been growing  the dividends at a CAGR of over 30% which is really impressive. In spite of such impressive dividend growth, the payout ratio is still less than 20% which provides great room to increase the dividends even further. Also, the company has been able to grow their revenue and profits at an average rate of 20% for the last few years. And the company has been buying back the stock aggressively too during this period.
The stock currently yields 0.75% with a quarterly dividend of $0.40/share. The stock currently trades at a P/E of 24.3 which is lower than its 5 year average of 29.1. Morningstar has rated the stock as 3 stars with a fair value estimate of $223.00. This stock is attractive even though the current yield is low mainly for its long-term growth prospects.

Glaxo SmithKline ADR (GSK)
 I don’t understand this stock. The company reported poor results this quarter and also reduced the outlook for the year and the stock dropped close to 10% in the last week. The stock is also trading at its 52 week low. But looking at the past results, the company had been reporting consistent revenue and income (though not much growth). The company has several medications that provide stable income and being a large cap company, I am not sure why one quarter’s results and outlook is having so much impact on the stock.
The stock currently yields 5.53%. The stock pays quarterly dividend, but unlike most other stocks, the dividend amount is not same each quarter. But overall annual dividends have been increasing the last 5 years (except 2013). The stock currently trades at a P/E of 14.6 which is lower than its 5 year average of 19.1. Morningstar has rated the stock as 3 stars with a fair value estimate of $51.00.
I am not sure if this is a buying opportunity for this company with stable revenues and high yields or is the stock headed for more downturn. But I plan to initiate (at least a small position) if the stock stays at this level.

Disclosure: I have no positions in the stocks mentioned, but might initiate positions in the near future.

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15 thoughts on “Watch list for August 2014

    • I am surprised that GSK is not popular among dividend investors in spite of it being a solid company with reliable revenue and dividends and also high yield. That’s why I am not sure if I am missing something.
      Thanks for stopping by.

  1. I own all but GSK and CLX although I wouldn’t mind adding CLX to the mix. I think I’ll probably wait for a bit more of a pullback though because I think there’s some better valued companies with similar growth prospects. Today’s selloff sure did help. I was able to add to 3 positions today thanks to my hefty cash hoard and if we get further weakness tomorrow and next week then I’ll just keep on adding. Although I’ll probably have to be a bit more selective so I still have a bit of dry powder handy in case we get a really big pullback.

    • JC,

      Yes. Today’s pullback was really good especially after a long time and if it continues, it will be great opportunity to add/initiate positions at wonderful prices. Looking forward to that. Any idea why GSK is not popular among dividend investors? I am just not sure if I am missing something.
      Thanks for stopping by and sharing your thoughts.

      • I’m not really sure since I haven’t looked into them that much. But if the dividend varies from quarter to quarter that’s surely part of the reason. Also I’m pretty sure the taxes are withheld up front so the yield needs to be cut by about 15% for the dividends you actually receive. You can recapture that come tax time in the US though.

  2. DGJ,

    Good looking list. I picked up Aflac and Kraft today. While I hate seeing the paper loss, I love the idea of getting bargains. I think Coke, Procter, and Clorox look good at these levels. GE at 3.5% and PM at 4.5%. also look good.

    MDP

    • Just noticed that KRFT dropped more than 5% and looks attractive at these levels. Will look into this further and might pick up some.

      GE has been going lower for few days now and is attractive. I will consider adding more if it wasn’t already the largest in my portfolio.

      Thanks for stopping by.

      • Either of y’all have an idea what the big drop in EPS are from for next year? TTM P/E 11.78 Forward P/E 15.85. I haven’t looked at KRFT in a while but I like the low payout ratio. Adding it to my list of companies to research. That list is getting way too long.

    • R2R,

      PEP is really good especially because their snack business is great and offsets any declines in the soda business. I hope to initiate position in PEP and/or KO this month.
      The market finally takes a breather after a long time and has corrected a bit. Hopefully this opens up more opportunities to invest.

      Thanks for stopping by.

      DGJ

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