Category Archives: Top pick

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March’s Pick

It’s time to announce our stock pick for March and there’s a good chance you’ll be happy to hear we’re not suggesting IBM (NYSE: IBM) again. To be clear, if IBM came out on top after assigning the scores, we’d have no problem recommending it for a fourth month in a row – but it’s not. This is about choosing the best stock, not about diversifying for no good reason. Like last month, we’re going to offer some choice. Our pick from the S&P 100 is General Motors Company (NYSE: GM) but we’re also watching Potash Corp of Saskatchewan (TSE: POT) which, while not on the S&P 100, still represents a good opportunity. To be sure, the buyer’s market continues. With markets still a little off, more than 30 companies on the S&P 100 are trading at least 25% below their 52-week high so there are lots of bargains to choose from if you want capital growth.

Let’s look first at GM. This well-known american company is trading 24% below the 52-week high which is a good sale price and makes the $0.38 dividend a 5.15% return. That return is outstanding for a big, blue-chip stock when we compare it to companies such as Apple (2.11%), Wal Mart (3.01%), Johnson and Johnson (2.82%), and McDonald’s (3.00%). With a P/E of 4.92, General Motors represents great value at this time and the $6 EPS indicates strong earnings. We added GM to our portfolio on March 1.

So what’s happening with Potash Corp? Since we mentioned them back on January 29, the price has moved up 8% which is a decent gain for a month if you had purchased them then and sold them now. That’s great for a quick fix but our strategy is to buy value and hold it. Despite that recent gain, they’re still 49% off the 52-week high which is a significant sale. The 11.17 P/E is attractive but the $2.05 EPS is less than ideal (in fact, an EPS that low doesn’t even score on our system) but the depressed worldwide potash price is to blame for that. The company is still profitable and continues to pay that juicy 6.1% dividend. If you’re comfortable straying a little from our core system, POT is a great buy!

Finally, we wouldn’t feel right if we didn’t at least give a little update on IBM. To be fair, it’s still an attractive stock. They’re trading 24% below the 52-week high which is a good sale. With a P/E of 9.82 and EPS of over $13 they are very well-priced for their earnings. The dividend yield is not outstanding but 3.89% is nothing to scoff at. If you previously purchased IBM and are looking to increase your position, it’s still a good time.

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February’s Pick

If you’re trying to pick a stock to purchase in February, just throw a dart at a list of the S&P 100 and you’ll likely do well. More than 50 of the companies on the index are currently trading at more than 20% off their 52 week high and another 40 or so are at least 10% off that mark. If capital growth is your goal, it’s hard to go wrong. But we want more. While it might sound like a broken record, we are, for the third month in a row, recommending International Business Machines Corp. (NYSE: IBM). Before we get to the reasons, let’s look at three other front-runners.

When all the scores had been assigned, Potash Corporation of Saskatchewan Inc. was in our top 3. It’s 55% off the 52 week high with a low P/E of 10.05 and they’re still profitable despite the collapse of potash prices. That collapse, however brings with it some uncertainty about their future price and we’d rather buy them on their way up than down. There are also some rumors about them cutting their jaw-dropping 10% dividend. Mind you, even if they slashed it by half you’d still earn a respectable 5%. If that dividend outweighs the price risk for you, buy them!

National Oilwell Varco (NYSE: NOV) is also a good-looking stock. They are 49% off the 52 week high with P/E of 10.57 and EPS of 3.29. This company designs and builds equipment for oil and gas drilling so they enjoy some protection from the oil price market. Still, the current uncertainty in oil prices makes this stock a little uncertain also. Of course, we all know that oil prices will recover and that means drilling will continue and eventually expand also. Their 6.2% dividend certainly makes them rewarding in the meantime.

Finally, Caterpillar (NYSE: CAT). This company was on our radar back in December but was nudged out by IBM. Well, they still look good. At 35% off the 52 week high, and with a P/E of 14.39 and EPS of 4.82 they continue to offer a juicy dividend of 5.3%. Caterpillar has its work cut out for it as low oil prices and sagging commodity prices mean less demand for their equipment. Nevertheless, they are a profitable company at a good price. Again, we prefer to buy on the way up but that dividend might make them attractive for some investors in the meantime.

To be honest, we’d be happy buying and holding any of these three, but we’re settling on IBM again. There are some mixed reviews about the near future of the company and time will undoubtedly prove half of those analysts right. For us, we want a solid company at a good price that pays a nice dividend. This month, that’s IBM. They are 31% below the 52 week high and, while they are still losing ground, we’re willing to ignore that and increase our position because the P/E and EPS are both so great at 9.5 and 14.8, respectively. They have a long history of rewarding investors with a steady (and growing) dividend which is currently at 4.3%.

Seems like the current market has something for every investor so you should find it relatively easy to pick a stock this month. We thought we’d give you a few options because, while the scores say one thing, it never hurts to consider some outside factors that influence prices. Remember, the name of the game here is buy and hold so no matter which of the four you go with, a few years from now you won’t have any regrets.

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January’s Pick

This month International Business Machines (NYSE: IBM) came out in the top spot with a score of 13, so we’re increasing our position in them after also recommending it last month. It’s currently trading at 21.6% below the 52-week high, representing a good sale, and offers a dividend of 3.8%.january_pick

The ratios are also still strong with a P/E of 9.49 and EPS of 14.57. Let’s not forget that Buffett still likes them. Works for us! Remember, too, that while our overall goal is to grow dividend income, capital appreciation of the share price is an important way to build wealth. IBM doesn’t have the highest dividend rate but it offers potential for share price improvement and is a safe bet overall. Last month we mentioned keeping an eye on Williams Companies (NYSE: WMB). This month they placed in the top ten but are too risky for us to recommend it. They are currently 60% below their 52-week high becausethey gave up some ground in the last month meaning their share price continues to slide. Sure, their dividend rate is now over 10% but that might not be sustainable and the slipping share price could still offset that return. We’ll keep waiting on that one.

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December’s pick

This month we’re buying International Business Machines (NYSE: IBM). After all the scores had been assigned, there were a couple of really attractive options this month. Williams Companies Inc (NYSE: WMB) and Caterpillar (NYSE: CAT) had scores of 10 each, but IBM came out in the top spot with a score of 13. WMB is trading 41% below the 52 week high which is a great sale, but continued uncertainty in the energy sector means it might go lower still so could be a better buy later. It also offers an awesome dividend yield of 7.1% but we managed to resist that
siren call.
ibmCAT is trading 32% below its 52 week high and the dividend is 4.3%, significantly higher than IBM’s 3.8%, making it another attractive choice.

We don’t always automatically buy the stock with the highest score because there are always other factors, beside the five financials we look at, to consider.

Despite what both WMB and CAT have to offer, we went with IBM for three reasons:

  1. At a P/E of 9.1 it seems undervalued so offers a better buy for the price. CAT’s P/E is 14.8.
  2. The EPS is 14.57 compared to CAT’s 4.82 – a big difference – which means IBM is earning more money per share.
  3. Warren Buffett continues to add to his position in IBM (Berkshire Hathaway now owns over 8% of IBM’s outstanding shares). ‘Nuff said?

Remember, while we favor dividend income, we also want to protect and grow our capital, which is why we chose to go with the promise of growth in IBM’s price over the dividend yield of WMB. I’m sure WMB will remain on our radar and will likely be a strong contender in the months to come.

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