I keep a watch list of roughly 15-20 companies that I would consider adding to my portfolio if they represent a good value. There are several good companies out there that I would love to add to my portfolio, but they do not come with appealing valuations at the moment. So, what does it take for a company to have an acceptable valuation for me to purchases shares? I imagine each investor has his/her own method, as for me I use the dividend discount method to give me an idea of what the fair value for the company should be. It’s not a perfect method, but it is useful in narrowing the list of candidates. I also like to see a P/E under 15 and I also look at the moving averages of a stocks price. Stock prices are not static, they move in the direction of the market as a whole and are a reflection of what is going on in the company itself. I would much rather be buying shares below that average than above. There are other factors that I like to see in a company, such as manageable debt levels, dividend payout ratios, dividend growth, and EPS growth. My methods employed may sound simplistic to some and complex to others, but what you really want to concentrate on is the underlying principle behind the effort that goes into determining fair price, which is the concept of margin of safety.
Investing comes with risk and investors try to manage that risk the best they can. Diversifying is one tool in which we can mitigate some of the risk. Buying with a margin of safety is another and you achieve a margin of safety by not over paying for your shares in companies. I think most investors would be well served to spend more time diversifying and entering stock positions with a margin of safety than they would worrying about selecting the perfect stock.
Getting back on track… I want to share with you guys a few companies that I’m looking at now that I feel are getting close to ideal candidates for The Stoic’s portfolio.
Excelon Corporation EXC
Excelon is a utility company that rose to the top of my list because of its dividend yield rising above 6%. The past month has not been kind to EXC. It’s stock price has dropped about 11% in just over a month. It is trading at near 52 week lows. My concern with a EXC is the fact that it is not a dividend grower. In its place I like WEC.
Intel INTC Intel adjusted its earnings guidance lower and the market did not like the news, not even a little. It traded at 25.09 on Thursday and closed at 23.20 Wed. of this week. For me INTC is getting really close to a buy. I actually did add a few shares on Friday, but I’m wanting to open a larger position closer to a 4% yield. I let INTC get away last year when it was just under $ 20 a share. I then watched it go up to over $29 a share. Even with lower guidance Intel is a strong company and one I believe will continue to be a player in the tech markets.
Lorillard came to my attention last week thanks to a post by Six Figure Investor. I had heard of LO before along with the other major cigarette companies. At the time LO was a bit pricey, but with its recent price decline, 5.3% dividend yield and 12% dividend growth averaged over the last five years I’ve become interested. I almost opened a position today at a price of 115.76. At the last minute I decided to wait. Seeing that it was up to 116.84 in after hours trading I’m not sure if it was a good call or not…
It should be obvious that I have not elaborated on what other reasons any of these three stocks would make for good investments or not. I’ve listed a few companies that have piqued my interest based mostly on recent price moves. The underlying companies behind the stocks seem to be worthy of further consideration. Always do your own due diligence and don’t rely on my commentary or anyone else for that matter. You know your goals and you know what investments will get you there. Good luck.
I’m always interested in what you guys have to say. Let me know what you think of these companies and if you have a few of your own you are considering.