The market started the year off on shaky ground. Through the first two weeks, the S&P 500 fell -6%. Since its peak on May 20, 2015, the S&P has fallen -10%. The Dow Jones Transport Index has fallen more than -25%. An interesting market development, from a Dow Theory perspective, is developing and we will offer our input on it soon. As a student of value investing, we offer our readers 53 companies which are trading near their respective annual low. These companies provide a solid start for any long-term investor.
|Symbol||Name||Price||% Yr Low||P/E||EPS (ttm)||Dividend||Yield||Payout Ratio|
|ADI||Analog Devices Inc||49.98||0.00%||22.72||2.20||1.60||3.20%||73%|
|ONB||Old National BanCorp.||12.47||0.08%||12.72||0.98||0.48||3.85%||49%|
|FII||Federated Investors Inc||25.94||0.12%||16.84||1.54||1.00||3.86%||65%|
|TROW||T. Rowe Price Group||65.36||0.12%||14.12||4.63||2.08||3.18%||45%|
|AJG||Arthur J Gallagher &||38.30||0.13%||18.87||2.03||1.48||3.86%||73%|
|EV||Eaton Vance Corp.||28.78||0.14%||14.99||1.92||1.06||3.68%||55%|
|APD||Air Products & Chemicals||119.02||0.16%||20.24||5.88||3.24||2.72%||55%|
|TIF||Tiffany & Co.||68.26||0.16%||17.82||3.83||1.60||2.34%||42%|
|HY||Hyster-Yale Mat. Handling||48.95||0.16%||9.54||5.13||1.14||2.33%||22%|
|MTB||M & T Bank Corp.||110.17||0.19%||14.73||7.48||2.80||2.54%||37%|
|WWW||Wolverine World Wide||15.73||0.19%||13.33||1.18||0.24||1.53%||20%|
|JCI||Johnson Controls Inc||35.35||0.20%||14.92||2.37||1.16||3.28%||49%|
|DNB||Dun & Bradstreet Corp.||94.95||0.20%||18.76||5.06||1.85||1.95%||37%|
|GS||Goldman Sachs Group||163.94||0.21%||10.77||15.22||2.60||1.59%||17%|
|STT||State Street Corp.||58.65||0.21%||13.70||4.28||1.36||2.32%||32%|
|JW-A||John Wiley & Sons CL 'A'||41.72||0.22%||14.90||2.80||0.80||1.92%||29%|
|TCB||TCF Financial Corp.||12.83||0.23%||14.42||0.89||0.30||2.34%||34%|
|PH||Parker Hannifin Corp.||90.55||0.24%||13.87||6.53||2.52||2.78%||39%|
|GD||General Dynamics Corp.||130.19||0.25%||14.84||8.77||2.76||2.12%||31%|
|PB||Prosperity Bancshares Inc||42.62||0.26%||10.12||4.21||1.20||2.82%||29%|
|LNC||Lincoln National Corp.||44.24||0.27%||9.41||4.70||1.00||2.26%||21%|
|UMBF||UMB Financial Corp.||43.18||0.30%||17.77||2.43||0.98||2.27%||40%|
|PBI||Pitney Bowes Inc||18.73||0.75%||9.86||1.90||0.75||4.00%||39%|
Watch List Review
Reaching the top of our watch list for the first time is Analog Devices (ADI). The maker of analog chips (which includes linear, mixed-signal, and digital integrated circuits) lost nearly -10% since the beginning of the year. The loss is in line with the Semiconductor index (SOX). Interestingly, Analog Devices is not a Dividend Achiever based on Mergent latest company report. However, it is a component of Mergent Dividend Achiever Index (DAA). The company increased their dividend back in 2015 by +8% and some are estimating that an increase of 2%-3% is likely. The dividend payout ratio should remain conservative at roughly 50% based on estimated profits. Conservative investors should be aware of the low in 2014 at $42, which is a -16% downside risk from the current level. Value Line estimates that Analog Devices should trade at 13.5x cash flow with a projection for 2016 cash flow per share to come in at $3.75 which brings the fair value at $50. The company has strong return on equity which ranges from 15%-20%. Their balance sheet is strong with little debt. We believe there is a good chance that we retrace $42 and that may be a good time to consider Analog Devices. Alternatively, one could look at Linear Technology (LLTC) which is a Dividend Achiever of 16 years.
The next three companies are small regional banks, two of which are components of the Dividend Achiever Index (DAA). Cullen/Frost (CFR) and Southside (SBSI) are listed as component of DAA while Old National (ONB) is not. These three companies have above average dividend yield with average payout ratio. When evaluating bank shares, we pay close attention to their book value. All three companies current price to book value ratio is lower than their five year average (refer to Morningstar under Valuation tab). With that many regional banks showing up on out list, we believe the entire sector should be evaluated before selecting individual shares.
The last company we'll highlight is QUALCOMM (QCOM). Full disclosure, we added to our existing QUALCOMM positions on Friday. The expectation is for the shares to continue lag the market in general which allows us to reach our goal of doubling our holdings. At the current price, the dividend yield is 4.2%. With an A++ rating on their financial strength rating from Value Line, we believe the dividend will be safe. Wall Street is expecting profit to come in at $4.17 which brings the earnings yield to 9%. With these figures in mind, we are comfortable owning the stock at this level and even lower.
Disclaimer On our current list, we excluded companies that have no earnings. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence. Our view is to embrace the worse case scenario prior to investing. It is important to place these companies on your own watch list so that when the opportunity arises, you can purchase them with a greater margin of safety. It is our expectation that, at the most, only 1/3 of the companies that are part of our list will outperform the market over a one-year period.