Welcome back to this series on the market and finding undervalued dividend growth stocks to research.
Market Commentary:
“Stay Invested, Especially When It Hurts”
2022 has been tough, no doubt about it. The stock market is down, the bond market is down, interest rates are up, inflation is up. The hits keep on coming. I was speaking with a fellow investor the other day and mused that this market feels like death by a thousand cuts. This saying comes from a dark origin, Linghci, the form of torture and execution used in China for hundreds of years. This process involved the slicing or removal of portions of the body over an extended period of time, resulting in death.
Now I am not saying that we are being tortured, not in the least, but this constant downward movement over the past year, day after day, week after week, can take a mental and financial toll on investors. It seems to never stop and can dissuade even the most ardent long term investor.
It is in times like this, when it seems the darkest, that is actually when the most opportunity exists, if we can stay the course. Bear markets like we are in today come and go. Over the past 80 years there have been 13 bear markets, including this one. Each time the market recovers and goes on to new highs, and the upswings are longer and higher than what was lost in the bear market.
Bear markets are usually short lived but can feel painful. The average bear market lasts approximately 12 months and the S&P 500 drops around 35% on average during this time. Part of our psyche tells us to sell to stop the pain. This is a mistake historically. As shown below from Fidelity, if we were to miss out on just the 5 best days over the past 40 years, our investment could be reduced by a full 38% over remaining invested. It gets even worse if we miss out on the best 10 days, 30 days, and 50 days. Don’t try to time the market.
The market has a way of surprising us when we least expect it. When the market does hit a bottom (and no one knows when that will be), the average returns gained after that point in time are very significant. One month after the bottom, the average return was 14.76%, 21% in 3 months, and 27.81% in 6 months, as shown below from The Money Guy Show with data from YCharts.
So stay the course, push through the bad times, stay mentally strong and keep your money working for you. Even when it is painful your future self will thank you for sticking with it. Add dividends, dividend growth, reinvesting dividends, and adding new capital at these depressed prices will catapult your investment even further when the market turns bullish again.
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Market Results:
This past week was mostly down among the sectors of the S&P 500, with Consumer Staples (+1.55%) and Healthcare (+1.04%) up, and Technology (-4.58%) and Consumer Discretionary (-3.53%) falling hard.
The other indices were mixed as well, with the Dow up 1.18% and the Nasdaq was down 3.11%. The market briefly rose on Thursday after the CPI numbers were released but then went down again on Friday. The broad indices are now down 18.44%, 24.82%, and 34.03% year to date, respectively.
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Dividend News This Coming Week:
Earnings season really takes off this week with some of the biggest names reporting, which may lead to some volatile swings:
Monday:
Bank of America (BAC), BNY Mellon (BK), Charles Schwab (SCHW), Equity Lifestyle Properties (ELS)
Tuesday:
Albertsons (ACI), Goldman Sachs (GS), Hasbro (HAS), Johnson & Johnson (JNJ), Lockheed Martin (LMT), Omnicom Group (OMC), (State Street (STT), Truist Financial (TFC)
Wednesday:
Abbott Labs (ABT), Crown Castle (CCI), IBM (IBM), Kinder Morgan (KMI), Procter & Gamble (PG), Prologis (PLD), PPG Industries (PPG), WD-40 (WDFC), Winnebago (WGO)
Thursday:
AT&T (T), Blackstone (BX), CSX (CSX), Dow (DOW), Fifth Third Bank (FITB), General Parts Co. (GPC), Nucor (NUE), Philip Morris International (PM), Quest Diagnostics (DGX), Tractor Supply (TSCO), Union Pacific (UNP), Whirlpool (WHR)
Friday:
American Express (AXP), HCA (HCA), Huntington Bancshares (HBAN), Schlumberger (SLB), Verizon (VZ)
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Upcoming Ex-Dividend Dates:
There are a lot of great companies going Ex-Dividend this week. Note: you must own the stock before the ex-dividend date to receive the payment.
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Undervalued Dividend Stocks:
This week’s results of the valuation screening now shows 46 companies on my tracker are now undervalued based on my 5 criteria.
- 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)
HBI, MCD, and JNJ fell off the list, and TROW was back on this week.
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, AOS, APD, AVGO, AXP, BAC, BLK, BMO, BNS, BR, CAT, CCI, CCOI, CNI, DLR, DOW, ECL, HD, IIPR, INTC, IP, KR, LEG, LOW, MDT, MSM, NKE, PFE, SBUX, SPG, SWK, SYY, T, TD, TGT, TROW, TSCO, TU, TXN, UGI, UNP, V, VZ, 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!