Month 113 - BUY LOW: A-rated Non-financial Value stocks in the S&P 100 Index - November 2020

Situation: The reason to buy high-yielding “value” stocks is that their low price is temporary. A company has to be large enough to have multiple product lines (to make money from one line in order to fund repairs on a troubled line) and be well-followed by analysts and business media. Numbers will tell us which stocks are temporarily undervalued. In this month’s blog we will start using the 29 A-rated value stocks identified in last month’s WATCH LIST (see Month 112). Eight have both a price that is no higher than twice the rational price or Graham Number (see Column AD in the Table), and a 7-year P/E that is no higher than 25 (see Column AF in the Table).

Mission: Using our Standard Spreadsheet, analyze those 8 companies. 

Execution: see Table.

Administration: All 8 companies meet our requirements for A-rated value companies: 1) listed in portfolio of iShares Top 200 Value ETF (IWX), 2) listed in portfolio of Vanguard High Dividend Yield Index Fund ETF (VYM), 3) S&P bond rating of A- or higher, 4) S&P stock rating of B+/M or higher, 5) 20+ year trading history on a public US exchange, 6) positive Book Value for the most recent quarter (mrq), 7) positive earnings for the Trailing Twelve Months (TTM).

Key analytics include a) the main Growth At a Reasonable Price (GARP) metric or 5-yr PEG ratio (see Column AI in the Table), b) leverage or “gearing” (see LT-debt-to-equity in Column T in the Table), c) Return on Investment or EBIT/Assets (see Column AR  in the Table), d) Weighted Average Cost of Capital or WACC (see Column P in the Table), and e) S&P Insider Activity (see Column AS in the Table). 

Bottom Line: Because of COVID-19, only 5 of these companies currently have an ROI greater than their WACC: PFE, CSCO, INTC, GD, IBM. Of those, PFE, CSCO, INTC, and GD have a 5-yr PEG ratio that is under 3; none of those use excessive leverage (i.e., the ratio of LT-debt-to-equity is less than 1). S&P Insider Activity is neutral for GD and PFE but unfavorable for CSCO and INTC.

Risk Rating: 7 (where 1 = 10-yr US Treasury Notes, 5 = S&P 500 Index, and 10 = gold bullion)

Full Disclosure: I dollar-average into PFE and INTC and IBM, and also own shares of CSCO, DUK, CMCSA, SO and IBM.

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