Yesterday I dropped two stocks, but the list is still too long. In the coming weeks there will be more cuts and if I find anything of more value perhaps there will be something new.
Dividends are a very important part of overall returns. BTM paid its last dividend in April 2009, but the payments have been irregular, while rewarding. DEO is rock solid paying an above average yield regularly. AEO and GE are a little above average also, and BF.A and DE are right behind them with dependable, but average yields. With the exception of Berkshire and EZ Corp, which never paid a dividend, the others halted dividends because of the economy.
- Brasil Telecom (BTM) Yield 7.62%
- Diageo plc (DEO) Yield 3.26%
- American Eagle Outfitters (AEO) Yield 2.52%
- General Electric Company (GE) Yield 2.47%
- Brown-Forman Corporation (BF.A) Yield 2.09%
- Deere & Company (DE) Yield 2.06%
- TNT N.V (ADR) (TNTTY) Yield 083%
- Anadarko Petroleum Corporation (APC) Yield 0.60%
- Anglo American ADR (AAUKY) None
- Berkshire Hathaway Inc. (BRK.B) None
- E-TRADE Financial Corporation (ETFC) None
- EZCorp Inc. (EZPW) None
- Grubb & Ellis (GBE) None
Price-to-Cash Flow looks good for most of these stocks, with a P/CF of 10 being the dividing line according to many Wall Street veterans, but who wants fair to middling? Given that perspective BRK, BTM, and ETFC seem like a steal while GE is quite the bargain. For the rest, my attention is drawn to BF.A, looking pricey, and GBE which is in pain.
- Berkshire Hathaway P/CF 1.01
- Brasil Telecom P/CF 2.22
- E-Trade P/CF 2.75
- General Electric P/CF 5.37
- Anadarko Petroleum (APC) P/CF 6.97
- TNT Post P/CF 9.06
- EZCorp Inc. P/CF 9.25
- American Eagle Outfitter P/CF 10.01
- Anglo American ADR P/CF 10.06
- Deere & Co. P/CF 13.18
- Diageo plc P/CF 13.43
- Brown-Forman P/CF 15.08
- Grubb & Ellis P/CF -2.40
In yesterday's review both makers of alcoholic beverages were on the edge. Today we see they both pay a dividend to the good and make you pay up to get it when you look at P/CF. I have decided to drop one of them for diversification purposes given how small the portfolio is going to be. Since Diageo has the better yield, super high ROE and a more reasonable buy-in on a P/CF basis I will be dropping Brown-Forman. Also weighing on my decision is that DEO is foreign based, has more top brands and made greater inroads in India and China.
Like Abbott Laboratories (ABT), Brown-Forman is a fantastic stock that would be a smart core holding for a long term or Roth IRA portfolio but the potential for the next 12 months is modest.
And then there is Apple...
Apple has been on a roll for the last few years, last month reaching an all time high of $208.00. Yesterday it closed at $197.80. Given its current price and all the positive news about the company broadcast on a daily basis and the fact that retail investors love it -- I don't.
The stock is selling at an insane P/CF of 26.47, 70% higher than BF.A which I just cut and it pays no dividend (yet). It does have a strong ROE of 23.5 compared to the S&P but it looks only average among the 2010 contenders, and the P/B is also pricey with a very average P/S of 2.37.
Sure it is possible that Apple comes out with another winning product but that rampant speculation is among the things that have driven the stock price to where it is. I think the downside outweighs the upside by a large margin so I will pass on this one.
Naked puts (sell to open put options) See Chasing Value: Ten stocks for 2010 -- Part 4 for the analysis with a follow-up yesterday of these Options:
- ETFC -- April 2010 puts (EUS-PY) with a strike price of $1.50 are offering 23 cents a share.
- EZPW -- March 2010 puts (ULP-OC) with a strike price of $15.00 are offering $1.00 a share.
- WFC -- April 2010 puts (FHU-PA) with a strike price of $27.00 are offering $3.30 a share.
Stay tuned to Chasing Value as the adventure continues. If you to want to start the journey from the beginning here are the links: 2010 picks: Part 1 / Part 2 / Part 3 / Part 4 / Part 5 / Part 6 / Part 7 / Part 8
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: Among the positions discussed in this post I own shares of DEO, ETFC, EZPW, GBE, GE, WFC.