Welcome back to this series on the market and finding undervalued dividend growth stocks to research.
Market Commentary
Hurricane or just a little breeze? That is what is on investors’ minds this week. There are mixed reports on the economy, but two potentially significant developments hit this week that caused some negativity, especially on Friday.
J.P. Morgan Chase’s CEO Jamie Dimon stated that investors should be prepared for an economic “hurricane” and that his company is bracing for a hard time. He stated that the Federal Reserve’s quantitative tightening, the war in Ukraine and its effect on energy and food prices will drag on the economy later this year. The second issue was Microsoft’s slashing of their fourth quarter earnings and revenue guidance on Thursday. Microsoft is arguably one of the most stable and quality companies in the world, with business across many industries, so a shift in guidance may be a forewarning of things to come.
Additionally, some members of the FOMC spoke this week and reiterated their opinion that the Federal Reserve will raise interest rates again this month when they meet on June 15-16. The expectation is a 0.50% increase. There were also discussions of continued increases in July and September this year. While these increases are probably already factored into the market’s assessment of the rates increases this year, the possibility of additional hikes to control inflation causing a severe economic downturn are very present in the minds of investors.
Higher rates will cause the costs of borrowing money to increase across the economy, which will cause individuals and businesses to make less purchases and investments, which could cause a slowdown in the economy. That said, if the rates aren’t increased sufficiently enough, the runaway inflation we are seeing will continue. This is a delicate balancing act that the Fed is trying to navigate.
The market reacted to these announcements and was down over this past short week, with the Dow, S&P 500 and Nasdaq down -0.93%, -1.17%, and -0.91%, respectively. This slight decrease came on the heels of a huge increase last week. The markets are now down 9.46%, 13.80%, and 23.22% year to date, respectively. There is still a lot of uncertainty, but the overall investor sentiment continues to increase, with the CNN Fear and Greed Index rising from Extreme Fear to Fear this week.
Dividend News This Coming Week
This week J.M. Smucker (SJM), Campbell’s Soup (CBP) and Brown-Forman (BF.B) report earnings. Apple (AAPL) has their Worldwide Developers Conference (WWDC) starting on June 6th, where they are expected to announce their new operating systems. Abbott Labs (ABT) announced that they will restart production of baby formula in the U.S. after a lengthy shutdown that has caused widespread shortages throughout the country. VICI Properties (VICI), the casino and gaming REIT, will be added to the S&P 500 index beginning on June 8th.
Undervalued Dividend Growth Stocks
This week’s results of the valuation screening shows 31 companies on my tracker are now undervalued based on my 5 criteria. Three are new this week.
- 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)
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, BMO, BR, DLR, HBI, HD, IIPR, INTC, JPM, LEG, LOW, 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!
Thanks for the list Jeramy. I enjoy each of your emails.