Month 119 - 16 High Quality S&P 100 Value Stocks - May 2021

Situation: You need an easy way to pick value stocks for your retirement portfolio. Start with 4 websites:

1) S&P 100 Index;

2) Vanguard High Dividend Yield ETF;

3) Vanguard Dividend Appreciation ETF;

4) Yahoo Finance. 

Mission: Show how to use these websites to build a working list of value stocks.

Execution: see Table.

Administration: Confine your attention to large companies, meaning those in the S&P 100 Index. Put any S&P 100 company that is named under Portfolio Holdings at the bottom of either Vanguard fund webpage. Go to the Yahoo Finance web page for each such company and click on Statistics. Under “Valuation Measures” find Price/Book (mrq). Remove companies on your working list that have a Price/Book higher than 6.0. 

All that remains is a safety check on each company. Make sure that 

a) the S&P Bond Rating is A- or better; 

b) the S&P Stock Rating is B+/M or better; 

c) the stock has been traded on a public exchange for 20+ years; 

d) Earnings Per Share (EPS) for the Trailing Twelve Months (TTM) is positive.

Bottom Line: What you get from investing equal dollar amounts in each of these 16 companies is a 50% higher dividend yield than you would get from investing in the iShares Russell Top 200 Value ETF, as well as quarterly dividends that have grown 4 times faster over the trailing 5-year period. Price volatility (5-Yr Beta) is also lower; perceived value (P/E) is higher because P/E is lower. Using Warren Buffett’s favorite metrics (net return on tangible capital employed, free cash flow yield, and Long-term debt to equity), 9 of these companies look good (UNH, PFE, CSCO, MDT, INTC, BLK, MET, GD). Seven companies have forward PEG ratios under 2 (UNH, PFE, CMCSA, BK, USB, RTX, IBM). None have a BUY rating from Morningstar, and only INTC is considered to be undervalued.

Risk Rating: 7

Full Disclosure: I dollar-average into NEE, PFE, CSCO, INTC, JPM, RTX, and also own shares of UNH, BLK, USB, GD, IBM.

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