Welcome back to this weekly series on the market and finding undervalued dividend growth stocks to research.
Well, here we go! Earnings season is back. The past week and the next 3-4 weeks will be full of quarterly earnings reports. These reports will give investors a sense on how companies are doing in this high inflation environment and reinforce ongoing supply chain constraints. In addition to the numbers posted, as investors we need to listen to what the earnings calls and presentations are saying regarding the company’s expectations going forward. A lot of detail can be gained from these communications.
During COVID and the recovery, a lot of companies were holding back their guidance numbers due to the uncertainty of what to expect. Last quarter most companies were stating that things were mostly positive, but I have a feeling we will see a lot more hesitation and uncertainty again. This past week the biggest newsmaker was JP Morgan Chase (JPM) with their earnings announcement on Wednesday, April 13th. Their numbers were ok, but it was what their CEO, Jamie Dimon, said afterwards that caught my attention. He stated “significant geopolitical and economic challenges ahead due to high inflation, supply chain issues, and the war in Ukraine”. Last quarter he was much more positive. Is this the canary in the coal mine, and the economic outlook for 2022 just got more dim, or is this just a temporary bump in the road?
Inflation numbers also came out this week, with the year over year inflation hit a 40-year high, rising 7.5%. Even if this number is at its peak, it is definitely affecting the consumer purchasing decisions and mood, so that may be an indicator of a pullback in spending going forward in the short term. Another concern was that the 30 year mortgage rates went over 5% for the first time since 2011. The era of cheap loans may be over for the short term, which makes purchasing a home more expensive, which could lower demand, again affecting investor and consumer sentiment.
This past week saw the Dow basically flat at down .38%, S&P 500 was down 2.39%, and the NASDAQ led the group down by 3.93%. For the year the markets are now down 5.19%, 7.84%, and 14.66% respectively, which has been a significant difference down from my last report.
The volatility and uncertainty can work to our advantage as dividend growth investors though, especially those of us who are still in the accumulation stage of our journey. As prices fall, we get to invest at better yields than we could recently. I actually prefer the prices to be lower, we get to buy on sale. No one knows if prices will continue to go down, for how long, or what will happen. That is why I focus on how much money I can invest, the dividends I receive, and try to ignore the capital appreciation part of the investments. I can only control what I do, not what the market does, but I can take advantage of the swings to my benefit.
With this recent weakness in the market, this week’s results of the valuation screening shows 26 companies on my tracker are now undervalued based on my 5 criteria (up from 21 last time).
With that said, here are the quality dividend growth stocks that are appearing undervalued based on all 5 of my valuation methods:
- Discount to Analyst Price Target
- 5% or more off the 52-week high
- Discounted Cash Flow (DCF)
- P/E Mean Reversion
- Dividend Yield Theory (DYT)
New on the list this week: AOS, AVGO, BLK, INTC, TXN,
APD, BAC, BR, CMI, DLR, FNF, HBI, HD, IIPR, JPM, LEG, MDT, MMM, MSM, SBUX, SWK, TROW, TSCO, UGI, V, and WBA continue from the last report and continue to look undervalued.
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!