Over the weekend I had time to recalculate fair value estimates of my favorite companies. Yeah the market seems to be over valued right now, but surprisingly I uncovered a number of attractive choices. I found 4 companies currently trading at least 10% lower than my calculated fair value: DRI, LO, NSC, & WMT. Three additional companies are currently trading between 5-9% discounts: BAX, BDX, & CVX. Many are trading close to my calculated fair value including dividend champions such as MCD and XOM.
Honestly the choices aren't bad if you can delete 2010 and 2011 reference points from your mind. Many times I think back to prices from yesteryear and conclude nothing is attractive in the current market. I am consciously trying to eliminate those types of thoughts from my head. This is 2013 and I must work with 2013 prices. I find that periodically recalculating fair value estimates is a good exercise. With this round of calculations I didn't run any Canadian stocks or REITs since my ROTH is now maxed out for the remainder of 2013.
3 Stocks for September:
#1 Wal-Mart Stores (WMT): I believe WMT is trading at a nice discount to its fair value plus it's one of the highest quality companies around. For the same reason as my recent KO purchase, I want to add high quality names that will surely remain in my portfolio for decades when markets are heated. Also I currently do not own WMT (or any retailer for that matter), which is a travesty since it belongs in my portfolio. I decided to lower my minimum entry yield to 2.5% qualifying Wal-Mart as a potential buy. I'm definitely eager to own a slice of this business and hope it's still paying 2.5% next month. I have enough cash on hand to do the purchase right now and would consider pulling the trigger on a dip.
#2 Chevron (CVX): I need to go ahead and buy some Chevron already! How long can this stock be at the top of my watch list without actually making the purchase? As with WMT, CVX is high quality and the type of company I want to lean on when I see DOW 15,000. Throw in a price less than my fair value estimate and it looks pretty darn good.
#3 Baxter International (BAX): This is currently my third choice. I'm always looking to secure pieces of medical device companies to bolster to my passive income stream. I believe the future is very bright for health care stocks which is why I'm bullish on Baxter. Becton Dickinson seems to be slightly more attractive from the valuation stand point, however the yield is too low to make a meaningful contribution to my passive income stream. I view BAX as a tier lower on the quality scale compared to WMT & CVX which is why it clocks in at number 3.
Hope you all had a wonderful weekend! I'm hiking all the way up Pikes Peak next week, wish me luck!