Sunday, August 25, 2013

September Watch List

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!


  1. My exposure to O&G is pretty much at its limit, which is a shame because I'd have really liked to have picked up CVX and XOM last week as share prices were pretty weak. Like you I'd like to get some more exposure to medical device makers and BAX seems to be the best value right now out of that space. At least among the dividend growers. The long term trend of health care growth is definitely in place thanks to demographics, and what better way to capitalize on that than through the razor blade model. Large volume of relatively cheap disposable components leading to repeat business.

    I like Visa here, although the yield is way low at only around 0.80%. It's another one of those long term trend stocks that happens to reward shareholders with increasing dividends. GE is another one although it's not for everyone as plenty of investors got burned in the financial crisis.

    1. Oh, and have fun hiking Pike's Peak. I think it'd be awesome to hike the Rockies from S-N. Although obviously that would take a very long time but it would be amazing. How many people could say that they did that and got to enjoy the beauty that is the Rocky Mountains in all sorts of conditions.

    2. Yes it's about a 14 mile hike up 8,000 feet of elevation. Then you have to consider the low oxygen supply near the summit... pretty challenging. I'm thinking it's going to take the whole day. Colorado Springs is about 6,000 ft in elevation and let me tell you that I had a hard time even completing a 3 mile run when I first arrived. Getting used to it now.

      I was surprised to see BDX is fairly attractive too. I may recheck the calculations because I am prone to making mistakes here and there. Morningstar has it listed as a $103 value where as I came up with $107. They have BAX at $80; I think it's worth $76.50.

      I'd be interested in finding out how Morningstar computes fair value, but I know it's based off a proprietary DCF calculation.

  2. Best of luck on your hiking adventure. That sounds like a real challenge and a lot of fun. I barely have enough energy to mountain bike the 13-14 mile hilly trails near my neck of the woods. Going up pikes peak is another level. Hoping to see pictures.

    I like WMT and I really like CVX (I just bought some myself), I also find MO attractive and it may be my next purchase as they get ready to boost that dividend another 9% coming up. I see you already own PM and LO though which are very strong ones as well.

    1. That hike was grueling... and I got headaches near the end. I felt like a pansy seeing other people run up the mountain, wow some people are in great shape! Overall It was the toughest hike I've ever done, but I'm not interested in ever tackling it again.

      Good call on CVX. I noticed the drop in MO as well. Not sure if I want more tobacco at the moment, but I must say PM looks pretty good low 80's. Still interested in BAX and a few others.

      I'll head on over to your site to see what you've been up to in a just a minute here.