Undervalued Dividend Growth Stocks to Research This Week (05/16/2022)

Welcome back to this series on the market and finding undervalued dividend growth stocks to research.

Have we hit ‘Peak Fear’ in the market?  Every news outlet and commentator we read online is only discussing how much carnage there has been in the market this year, how much cumulative losses we have taken, etc., etc.

The CNN ‘Fear and Greed Index’, shown below, is at one of the lowest levels possible. It is significantly lower than even a month ago, when it showed 41.

The AAII ‘Investor Sentiment Survey’, shown below, offers insight into the opinions of individual investors by asking them their thoughts on where the market is heading in the next six months.  The most recent report shows only 24.3% of responders are bullish over the next 6 months.

This graphic below is a representation of the market cycle and the sentiment that is seen during each part of the cycle.  Are we in the panic, capitulation, despondency stage?  The way the markets have seen such a broad selloff leads me to believe we are near these bottom stages.

The 6 month returns of each of the indexes are showing clear downward trends, but since this is off of all time highs, is this pullback really the “carnage” that the media is portraying?

The past two years have seen a spike in valuations and investor interest in investing, which has caused valuations to reach potentially unsustainable and historically abnormal levels.  Maybe this downturn is just a cooling off or a return to normal valuations.

One thing I do know is that the valuations are now much closer to historical valuations.  Per Yardeni Research, the valuations have come down significantly, some showing valuations we haven’t seen in years (except in March 2020).  

All this to say that while no one knows exactly where the market is going to go from here, there are clear indicators that the fear may be overblown and now is a good time to add money to your investment portfolio.  Valuations are better than we have had for years.  Take advantage, it doesn’t always last very long.  Last year we were all hoping and praying for a dip.  Well, the dip is here, are you ready?

The market was down last week again, with the Dow, S&P 500 and Nasdaq down 2.14%, 2.41%, and 2.80%, respectively.  If it was not for the significant rally on Friday, this would have been an even more significant drop.  

As the prices go down across the market, more and more opportunities are arising to acquire great dividend growth companies at undervalued levels.

This week’s results of the valuation screening shows 30 companies on my tracker are now undervalued based on my 5 criteria. 

1. Discount to Analyst Price Target
2. 10% or more off the 52-week high
3. Discounted Cash Flow (DCF)
4. P/E Mean Reversion
5. Dividend Yield Theory (DYT) 

Note: I have increased the percent off of the 52-week highs to 10% or more to reflect the current market conditions.

Here are the quality dividend growth stocks that are appearing undervalued based on all 5 of my valuation methods:

Stocks Listed: AOS, APD, AVGO, BAC, BLK, BR, DLR, FNF, HBI, HD, IIPR, INTC, JPM, LEG, MDT, MMM, MSM, RY, SBUX, SMG, SPG, STOR, SWK, TD, TROW, TSCO, TXN, UGI, V, WBA

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!