Thursday, December 20, 2012

Finding Value in This Market

The Dow Jones Industrial Average is back to 13,250 again but for some reason it doesn't strike me as unreasonable this time around. I've been scanning my watch list the past few days trying to find companies trading at attractive prices.  I just don't see it. The market as a whole might seem reasonable, but the individual companies I want to buy are looking a little pricey.  Hmm

At this point I'm honestly not sure if I'll make a purchase in December.  It wouldn't really bother me since I went on a shopping spree the past two months.  At the same time I do intend to make monthly purchases and have done so every single month starting November 2010.  That's over two years straight which started well before I was blogging. 

I was planning on picking up some INTC the other week, but just as I was getting comfortable with the price sub $20 it shot back up.  That ship has sailed.  Oh well. 

I'll likely hold out for better prices, but here is what I'm considering:

Lorillard (LO)
13.9 P/E / 13.5 P/E (5Yr Avg) / 8.7% LT Growth (projected)
5.3% Yield / N/A Yield (5Yr Avg) / 71.1% Payout Ratio

Tobacco stocks in general dipped the past week.  The current news in the tobacco industry is two fold.  The first is that the EU has proposed stricter warnings on cigarette packs.  The new legislation would force 75% of the packaging to be warning pictures and text.  Lorillard doesn't sell products in the EU or anywhere else outside the US however.  It's a moot point for LO, but the nanny state mentality could spread.  Wow you mean to tell me cigarettes are unhealthy?  I would have never guessed without the new packaging.  Haha! 

The second news story is cigarette manufacturers (including Lorillard) will have to release settlement money they have been withholding.  However, they will be able to claim credits since smoking use has decline over time.  LO will be able to claim about $200 mil over the next 5 years.

What I like about Lorillard is that it has a blockbuster brand in Newport, it has branched out into electronic cigarettes, the yield is fantastic, and it comes with nice growth prospects all at a reasonable valuation.  The debt load is a bit concerning, but you'll see a lot of that in the tobacco industry.

Hasbro (HAS)
14.1 P/E / 14.3 P/E (5Yr Avg) / 7.4% LT Growth (projected)
3.9% Yield / 2.6% Yield (5Yr Avg) / 49.6% Payout Ratio

I'm looking at Hasbro for a couple of reasons.  First off I need more holdings from the consumer discretionary sector.  HAS fits the bill.  Secondly I like the value this stock offers.  I have a fair value of $42 on HAS, it's currently trading at $36.57.  That's a discount of about 15% which is quite attractive.  A huge negative with buying shares of Hasbro right now is the accelerated dividend which already went ex.  If I bought shares today I would have to wait all the way till May to get paid.  Bummer. 

I think Hasbro has done a good job managing its brands.  My Little Pony made a resurgence the past few years, GI Joe and Transformers have surely benefited from Hollywood movies, and now that Star Wars is set to make additional movies I think toys from that brand could be a source of growth in the future.  A subset of the population goes absolutely nuts for Star Wars.  Perhaps I should load up before the mania returns.

11 comments:

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  2. I've been struggling to find much value too. Although I did make 2 purchases this morning. I'll probably be done for the year unless the markets really drop off ahead of the fiscal cliff deadline. If that happens then I'm looking to add to the big ones, KO, PEP, PG, JNJ... but we'll see what turns up. I'll have to look more into HAS, I thought about it earlier this year but then never got around to really looking at the company.

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    1. I'll stop by to see what you bought in just a second. I would love to add to those companies mentioned. Especially KO.

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  3. I like LO. Kicking myself for not getting it a few weeks back when it dipped to around 110.

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    1. I remember that! I bought some shares a few months ago around 115. Of course it went down a bit more right after. I'm interested in LO under $120 which will soon become $40 because the shares are splitting 3 for 1!

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  4. I agree with you. Many of "my stocks" in my watch list are not good for buying at the current prices except gold (GLD) which is under sell off and a great opportunity to add shares to portfolio. I am adding GLD as a hedge against FED. It really takes a lot of nerves having set some price where you want to buy and the stock barely touches is if at all and moves without you up. As I was mentioning GLD, my next buy point was at $158, if the selling is done, it may reverse without me as well.

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    1. Happy hunting with GLD! Owning gold is not part of strategy, but I know it has been a fantastic investment for many people the past few years. I just checked GLD and it's very close to 158, keep your eyes peeled!

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  5. I haven't dwelt too much on what I might buy next, but I will likely pay more attention to my watch list in the new year. I have looked at both LO and HAS in the past and they have seemed like reasonable investments, though they never made it to the top of my watch list.

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    1. I'm not in a hurry to buy anything at the moment but HAS would be the one I'm most interested in. It's a shame they accelerated the dividend though. No rush to buy shares now since I'd have to wait 5 months to see a payment roll in. o.O I think December might break my streak of monthly purchases.

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  6. Tobacco stocks have had nine lives. Considering all the lawsuits brought against tobacco companies its amazing how well these companies have done over the years. Tobacco stocks are still unpopular so that helps keep their valuations attractive.

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