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Deep Value Dividend Growth Index Week 23 Update: Gorging On The Most Undervalued Stocks On Wall Street

Posted On May 1, 2017 11:38 pm
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Click here to read up on the intro to this portfolio, the theory behind it, and its methodology.

Last week was certainly chock full of interesting events. The two day post French election rally (in which the pro EU Centrist Technocrat was essentially guaranteed ultimate victory in the May runoff), set the market up for a strong week. That was followed by 190 earnings reports, about 70%, and 60% of which beat expectations in earnings and sales growth, respectively.

In addition, President Trump released his single page (skimpy on the details), tax reform proposal, which basically proposes all of the market’s most asked for things.  And of course the lack of a government shut down (through October at least) gave the market further reason to cheer. However, all the positives of the week were overshadowed by a VERY weak Q1 GDP growth estimate of just 0.7%, the weakest in three years.

So it seems that both bulls and bears have reasons to continue to support their views, and the market is likely to remain largely range bound as we wait to see whether Congress can make good on its goal of getting tax reform done this year.

As for specific changes to the portfolio, good earnings results mean few buying opportunities. However, as it was the end of the month we did enjoy a nice buffett of adding to the most undervalued names we own including:

Tesoro Corp (TSO): 36% undervalued
HollyFrontier (HFC): 36%
HanesBrands (HBI): 36%
General Motors (GM): 33%
McKesson Corp (MCK): 31%
Teva Pharmaceuticals (TEVA): 30%
Williams-Sonoma (WSM): 26%
Compass Minerals International (CMP): 25%
Magna International (MGA): 24%
L Brands (LB): 23%
Delta Airlines (DAL): 22%
Kimco Realty (KIM): 21%
CVS Healthcare (CVS): 21%
Qualcomm (QCOM): 21%
Polaris Industries (PII): 21%
Shire (SHPG): 20%
Gilead Sciences (GILD): 19%
Lazard (LAZ): 19%
Ford Motor (F): 18%
AmerisourceBegen (ABC): 18%
Simon Property Group (SPG): 18%
Wells Fargo (WFC): 17%
VF Corp (VFC): 17%
Ingredion (INGR); 16%
Albermarle (ALB): 16%
Canadian Imperial Bank (CM): 16%
Marathon Petroleum (MPC): 15%
Macerich (MAC): 15%
Amgen (AMGN): 15%

Portfolio Stats:

Portfolio Holdings: 200

Yield: 3.68% (S&P yield 1.94%)
Yield on Cost: 3.79%

Lowest Yielding Holdings:
MercadoLibre (MELI): 0.26%
Shire PLC (SHPG): 0.51%
Ball Corp (BLL): 0.52%
NVIDIA (NVDA): 0.54%
MarketAccess Holdings (MKTX): 0.69%
Dr. Reddy’s Laboratories (RDY): 0.73%
McKesson Corp (MKC): 0.81%
Charles Schwab (SCHD): 0.82%
FedEx (FDX): 0.84%
Expedia (EXPE): 0.84%

Highest Yielding Holdings:
New Residential Investment Corp (NRZ): 11.52%
Dynagas LNG Partners (DLNG): 10.36%
Golar LNG Partners (GMLP): 10.12%
Sprague Resources (SRLP): 9.04%
Energy Transfer Partners (SXL): 8.69%
KNOT Offshore Partners (KNOT): 8.68%
Global Medical REIT (GMRE): 8.63%
Starwood Property Trust (STWD): 8.46%
GasLog Partnes (GLOP): 8.39%
8Point3 Energy Partners (CAFD): 8.30%

Valuation Metrics

PE: 14.91 (24% below S&P 500)

Price/Fair Value: 0.86

FCF Margin: 16.31% (vs S&P 500’s 20.18%)

Return on Assets: 7.79% (8% above S&P 500 average)

Return on Equity: 25.52% (20% above S&P 500 average)

Average Market Cap: $12.6 billion (85% below S&P 500 average)

Projected 5 Year Dividend Growth: 9.18% (56% above S&P 500 20 year median)

Projected Annual Total Return: 13.0% (43% above the market’s historic CAGR since 1871)

Potential Annual Total Return: 17.1% (89% above market’s historical return)

Smallest Market Cap Holdings:
Global Medical REIT (GMRE): $164.3 million
Jernigan Capital (JCAP): $214.2  million
Farmland Partners (FPI): $350.66 million
PennantPark Floating Rate Capital (PFLT): $369.9 million
Medequities Realty Trust (MRT): $379.6 million
City Office REIT (CIO): $385.3 million
Westwood Holdings Group (WHG): $490.0 million
Sprague Resources (SRLP): $563.1 million
Dynagas LNG Partners (DLNG): $593.8 million
Easterly Government Properties (DEA): $748.3 million

Largest Market Cap Holdings:
Apple (AAPL): $769.0 billion
JPMorgan Chase (JPM): $309.8 billion
Wells Fargo (WFC): $272.1 billion
AT&T (T): $240.3 billion
Procter & Gamble (PG): $222.7 billion
Bank Of America (BAC): $235.5 billion
Pfizer (PFE): $201.2 billion
Verizon Communications (VZ): $187.2 billion
Oracle (ORCL): $185.4 billion
Novartis (NVS): $182.0 billion

Portfolio Composition: 

Consumer Cyclical:         31.24%
Healthcare:                         17.82%
REIT:                                      10.33%
Energy:                                    8.98%
Industrials:                             6.77%
Consumer Defensive:        6.40%
Finance:                                   5.85%
Basic Materials:                     5.38%
Tech:                                          4.82%
Utilities:                                    1.73%
Telecom:                                  0.69%

Largest Holdings:
L Brands (LB): 7.43%
DineEquity (DIN): 4.91%
Perrigo (PRGO): 2.96%
Teva Pharmaceuticals (TEVA): 2.80%
McKesson (MCK): 2.52%
Expedia (EXPE): 2.49%
VF Corp (VFC): 2.03%
Thor Industries (THO): 2.01%
CVS Health (CVS): 1.93%
Tesoro Corp (TSO): 1.85%

Top 10 Holdings: 30.93%

Worst Performers:
Spirit Realty Capital (SRC): -7.68%
Helmerich & Payne (HP): -6.71%
Verizon (VZ): -6.45%
DDR Corp (DDR): -6.2%
Kimco Realty (KIM): -5.22%
Ramco-Gershenson Properties (RPT): -5.12%
Nielson Holdings (NLSN): -4.98%
Compass Minerals Internation (CMP): -4.94%
Kroger (KR): -4.91%
Teva Pharmaceuticals (TEVA): -3.99%

Best Performers:
NextEra Energy Partners (NEP): 37.6%
Apple (AAPL): 31.11%
Broadcom (AVGO): 29.78%
Digital Realty Trust (DLR): 28.20%
Vail Resorts (VAIL): 25.53%
MarketAxxess Holdings (MKTX): 25.02%
Delphi Automotive (DLPH): 25.00%
MercadoLibre (MELI): 23.91%
GasLog Partners (GLOP): 23.47%
Holly Energy Partners (HEP): 22.69%

Portfolio Performance:

Portfolio Annualized Total Return: 12.31%
S&P 500: 10.20%
Outperformance (Alpha): 2.11% (23 straight weeks of beating market, by 21% so far)

What I’m Watching This Week

After this past week’s terrible GDP growth the biggest and most important economic report to watch is Friday’s jobs report for April. Specifically, what rate of job creation are we generating, how the participation rate changes, and most importantly of all, year-over-year wage growth.

The concern is that with such a low participation rate that even good job creation is not generating rising wages, which is ultimately what drives consumer spending and economic growth.

Of course it’s not that simple, because jobs and wages are locally distributed, and companies have need for a certain number of positions with certain skill sets. Then again American’s freedom to pick up and move across the country to were the jobs in their particular fields can be complicated by housing costs, as well as the ability of a spouse to find a job in another state.

In corporate earnings its another busy week including:

Mon: CAH
Tues: MO, PFE, CVS, MA, AAPL, GILD
Wed: ADP
Thur: BUD, RDS.A, D

 

About author

Dividend Sensei
Dividend Sensei

I’m an Army veteran and former energy dividend writer for The Motley Fool. I currently write for both Seeking Alpha, Simply Safe Dividends, Investorplace.com, and TheStreet.com.

My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams, and enrich their lives. With 20 years of investing experience, I’ve learned what works and more importantly, what doesn’t, when it comes to building long-term wealth and income streams. I’m currently on an epic quest to build a broadly diversified, high-quality, high-yield dividend growth portfolio that:

1. Pays a 4% to 5% yield
2. Offers 9% to 10% annual dividend growth
3. Pays dividends AT LEAST on a weekly, but preferably, daily basis

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