Welcome back to this series on the market and finding undervalued dividend growth stocks to research.
Market Commentary:
“What Goes Up, Must Come Down?”
It has been a few weeks since I last wrote and it is amazing how different the market is now. In September / October there was what I call peak fear, the market was down and the overall sentiment was very low. While a lot of concerns still remain, including rising interest rates, fear of a recession in 2023, and earnings declines, the overall sentiment is much improved. The CNN Fear and Greed Index is at 56 today which is in the “greed” category.
The question remains will this sentiment last. We are receiving economic news regularly showing demand is declining and prices are still going up. The Federal Reserve is scheduled to meet next week to determine the next interest rate hike, which will be likely 0.50% more, and the Consumer Price Index (CPI) is due out on December 13th. These factors will continue to weigh on the market and will cause volatility in the day to day swings. These concerns have already crept back into prices, as we have seen significant weakness lately. The old saying “what goes up must come down” seems to be happening right now. Even though sentiment had changed, the underlying fundamentals and macro risks to the market remain.
As dividend investors we should embrace volatility and lower prices as it gives us the opportunity to buy quality assets at lower prices, giving us higher yields and the opportunity for increased capital gains in the future.
Market Results:
Even with the positive market moves over the past few months, this week and last have been red. In fact, this week’s market drop was the worst since September. This past week was down among the sectors of the S&P 500 except for Healthcare which was barely up, 0.25%. The worst sectors were Energy (-6.73%), and Communication Services (-4.84%).
The indices were down across the board, with the S&P 500 down 3.37%, Dow down 2.77%, and the Nasdaq was down 3.99%. The market briefly rose on Thursday but then went down again on Friday.
Dividend News This Coming Week:
Earnings season is mostly over but there are still a handful of names reporting this week:
Monday:
Oracle (ORCL);
Tuesday:
ABM Industries (ABM); Accenture (ACN)
Wednesday:
Lennar (LEN); Nordson (NDSN)
Thursday:
Jabil (JBL)
Friday:
Darden (DRI); Winnebago (WGO)
Upcoming Ex-Dividend Dates:
There are a lot of great companies going Ex-Dividend this week. We have also seen a good amount of dividend increases announced lately, which is typical for this time of year but it is always great to get a raise! Note: you must own the stock before the ex-dividend date to receive the payment.
Undervalued Dividend Stocks:
This week’s results of the valuation screening now shows only 16 companies on my tracker are now undervalued based on my 5 criteria. This is a significant change from the last report and coincides with the increase in prices over the past few months.
- Discount to Analyst Price Target
- 10% or more off the 52-week high
- Discounted Cash Flow (DCF)
- P/E Mean Reversion
- Dividend Yield Theory (DYT)
For information on how these valuation methods are calculated, please check out my valuation post here.
Here are the quality dividend growth stocks that are appearing undervalued based on all 5 of my valuation methods:
Stocks Listed: ABT, AXP, BAC, BMO, IIPR, LEG, MMM, NEP, SWK, TD, TU, UGI, UNP, V, WBA, WSO
This list should be used to begin your research to determine if the stock meets all of your investment goals and criteria. Valuation should only be one of many aspects you look at when deciding to make an investment.
Best of luck, happy investing, and check back next week for more undervalued stock ideas!