Welcome back to this series on market valuation and finding undervalued dividend growth stocks to research. I will be publishing this report on a monthly basis going forward to provide stock ideas to consider and do further due diligence. I am a big proponent of buying quality businesses at fair prices. Conducting multiple valuation calculations will allow you to have a better understanding of which companies are attractively priced.
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Market Results:
After a quite disappointing 2022 for most investors, the market has generally been in an uptrend this year, with the NASDAQ leading with a 9.56% return, S&P 500 at 3.72% and the Dow basically flat at -0.78%. February has been a little soft, with some of January’s gains taken back. Still, this is a great start to the year.
The individual sector results for the year so far are mixed but most sectors are positive, with only 4 of the 11 in negative territory this year, which is again a change from 2022 where the only positive sector was Energy. Consumer Discretionary is leading the returns so far this year, at 12.76%, followed by Communication Services. The laggards are Utilities and Healthcare, at -6.16% and -5.69% respectively.
Valuations across the board are elevated than where we ended 2022 but are quite reasonable right now, with only the S&P 500 Large Cap index at a slight premium to historical figures. Midcap and Smallcap are trading at significant discounts and may be an area to focus on quality names that have been brought down with the market unnecessarily.
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Undervalued Dividend Stocks:
With the mixed results, there are certain industries where the valuations have come down and now there are quality dividend stocks at a discounted valuation that we can research. This month’s results of the valuation screening shows 23 dividend growth 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)
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, ADP, APD, BLK, BMO, BR, DLR, DOW, ECL, INVH, IP, JNJ, KR, MDT, MMM, NEP, O, SYY, TD, TU, TXN, UNH, UNP
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 month for more undervalued stock ideas!