February is ending with a Leap Day. This means an extra day for me to think, analyze and to consider what to watch for in March. Especially now that the stock exchange is on a sharp downward slope due to the widespread fear of the #coronavirus becoming a pandemic.
The good thing is that the above chart is an average. Many stocks have declined even further than that and some of them have finally come into proper valuation zone.
Having said that, I have done my homework today and the below 5 stocks are the stocks that I will be watching in the upcoming month.
Note: @Dividendbelegger, 3 European stocks for consideration 😎 -> ref: your reply to my comment on your blog.
1️⃣ 3M Company
This one should come as no surprise for the frequent readers of this blog. I recently purchased some 3M and I am looking at this stock again in the upcoming month. It’s a foundation stock for me in the Tier-1 group.
3M ($MMM) pays a quarterly dividend of $1.47 or $5.88 on an annual basis. It just recently raised its quarterly dividend from 1.44 to 1.47 which was a rather conservative increase from the company. Were they already envisioning tougher times ahead? 🤔
With the current share price 3M yields 3.94%. The payout ratio is 75% based on 2019 earnings and 62% based on estimated 2020 earnings.
3M has a a blended P/E of 16.6 and my own discounted cash flow analysis gave 3M a fair value of $156. The below FastGraph also shows that the price is becoming very attractive now, and it hasn’t been in such value zone since 2012.
I find 3M currently attractively valued and I am expanding my position using a dollar-cost-averaging approach while the stock and the market are in decline. I intend to buy some shares again around a $140 share price.
2️⃣ Novartis AG
I recently did an analysis on Novartis AG and I didn’t expect the share price to get this quickly in such attractive valuation.
Novartis ($SWX:NOVN) just increased its dividend with 4% to 2.95 CHF. At its current share price (81.25 CHF) the stock yields 3.63%. The payout ratio is 56% and it has a strong balance sheet which gives it enough cushion in case of a decline in earnings.
Novartis has a P/E of 15.38 and my own discounted cash flow analysis gave Novartis a fair value of 95.06.
I find Novartis currently attractively valued and I am aiming to initiate a position in the upcoming week. I will probably aim for a purchase price of 80 CHF, just because it is a round number and close to the current share price.
3️⃣ Unilever NV
Not long ago I also did an analysis of Unilever NV ($AMS:UNA). I didn’t consider it worth buying at that time, so what made me change my mind now?
Well, that’s a simple answer. It just went below my fair value estimate of 50.06 EUR and it is nearing my buy-price of 45.06 EUR (10% margin of safety). The current share price of Unilever is 47.62 EUR while it was just recently still selling for 55 Euro.
Unilever pays a quarterly dividend per share of 0.4104 EUR which means 1.64 EUR on an annual basis. At the current share price the stock yields 3.44%. An announcement of the next dividend increase can also be expected somewhere in April which makes the current share price even more attractive.
The payout ratio is currently 64% which is a good ratio for me. It gives enough cushion, but I don’t prefer it too much to increase with the upcoming dividend announcement. I also expect that Unilever management will be conservative due to all the market turmoil, but let’s see!
I find Unilever NV currently attractively valued and I am aiming to add to my position in the upcoming month. I will aim for a purchase price of 45 EUR
4️⃣ Danone SA
Danone SA ($EPA:BN) came just recently on my radar when I was doing some further analysis into European Blue-chip stocks with a long dividend growth history.
I don’t know why I didn’t look a bit deeper into it before, I guess that just happens from time-2-time. But as mentioned earlier in 5-bullet Sunday, they increased their dividend last week with 8% to 2.10 Euro per share. At it current share price, the stock yields 3.3%.
Their payout ratio currently stands at 54.5% based on recurring EPS or 71.1% according to IFRS EPS. I think it is important to note the difference in case you want to do your own homework. Either case, I am looking at the recurring EPS, because the explanation in FY2019 earnings, page 4, is fair.
Although, you might argue that impairing goodwill is just a corrective action for past management decisions and therefore I fully agree with IFRS’ stance on expensing it in the income statement.
Having said that, Danone currently spots a P/E of 16.5 and my discounted cash flow analysis estimates the fair value at 67 EUR.
I find Danone currently attractively valued, but I would like to have a little bit of a bigger margin of safety (15%). Therefore I am aiming to initiate a position in Danone if it hits 56.95 EUR in the upcoming month.
5️⃣ The Disney Company
Last but not least, a little bit of a different type of stock, because compared to the others, this is a relatively low-yielding stock.
Actually, Disney ($DIS) is one of my favorite all-time companies. Who doesn’t love Mickey Mouse and all their other franchises? It’s just amazing what this company has done over the years and especially Bob Iger who unfortunately is stepping down as CEO.
Disney currently sells for $117,65 at a blended P/E of 21.02. It pays a semi-annual dividend of $0.88 per share, which means $1.76 on an annual basis. The stock currently yields 1.5%. The payout ratio stands at 31.5% which gives Disney ample room to keep paying dividends in a potentially upcoming downturn.
I would like to note though that calculating a fair value in the traditional way became a bit harder, because the investments in Disney+ has had a strong impact on their Free Cash Flow. This is probably also why Disney didn’t increase their dividend for the first semi-annual payment.
Disney has been clear about that, because they need to strongly invest now to gain market share and become a true competitor to Netflix. At the same time the #coronavirus is expected to impact their EPS due to the park closing in China.
Hence, a lot in the valuation currently depends therefore on the faith that we put in management in their ability to execute and to turn Disney+ into a profitable business. But I am also expecting that the coronavirus will fade out during the remainder of the year so that the parks can return to normal again.
Disney is a true Tier 1 stock for me which means that it lays the foundation for my portfolio. The dividend yield is on the low end compared to other stocks in my portfolio, but I believe that over time Disney will pay me handsomely during my retirement 💪
Having said that, I find Disney not yet attractive enough yet, but with the steep decline from the last week and potential more decline to come I am hoping that the stock reaches the $100 range in March. I definitely would consider adding some shares to my existing position around that price.
I am just wondering myself, am I facing strong confirmation bias when it comes to Disney? I don’t know, it might be, so please make sure to do your own homework as well.
Just remember, this is a watchlist, not a buy-list 😜
In my opinion these are 5 great companies at attractive prices already or quite near to attractive prices. I am going to place my purchase orders soon and I just hope that some of them will get triggered. I have been building up some cash over the last year which I can finally start to deploy a bit.
Having said that, there are many other companies that also became attractive during this stock market correction but I haven’t mentioned some of those because I have already a pretty large positions in them or I want to do further analysis first. At the same time I need focus, hence why I am limiting my monthly watchlist to 5 stocks.
I am OK with missing out on some of the others. As an example, oil companies are very interestingly priced now based on a historical pricing basis and their dividend yield. It does come with a risk though as the industry is clearly out of favor.
Having a diversified portfolio is key and oil has a place in it. However, I will not add them anymore in the upcoming month, because I have already enough of a position in it and 1 put-option outstanding for $XOM (which I hope gets triggered). Besides that, it is easier now to start initiating positions in other stocks due to more attractive valuations.
As an example, I believe that the following companies are also interesting, but I just didn’t have the time yet to do a deeper analysis after their latest earnings reports.
- Abbvie ($ABBV)
- Enagas SA ($BME:ENG)
- IBM ($IBM)
- United Parcel Service ($UPS)
- Broadcom ($AVGO)
And in particular oil & gas companies:
- Royal Dutch Shell ($AMS:RDSA),
- Exxon Mobil Corporation ($XOM)
- Chevron ($CVX)
- Total SA ($EPA:FP)
Looking at this list just means that it’s finally starting to be fun again 🎉🎈😁
I have been waiting quite a bit for such correction and it has made me really excited. I hope you feel the same excitement as me, because such a feeling is just great.
That’s it for now and all that I would love to say next is just to enjoy the last few hours of the weekend 👍
Happy investing in March!
PS: Which stocks do you have on your watchlist? Also some of these or others? I am very interested to learn about your stock picks!
If you liked reading this post then please hit the like button. I would be very grateful 🙏.
Feel also free to ask any question via the comment section.
With best Regards,
— European Dividend Growth Investor
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DISCLOSURE: I own 3M Company, Unilever, The Disney Company, Abbvie, Royal Dutch Shell, Exxon Mobil and Chevron. I intend to initiate a position in Novartis and Danone in March.
DISCLAIMER: I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.
I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.