Undervalued Dividend Growth Stocks to Research This Week (06/13/2022)

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

Market Commentary:

Inflation.

That is all that needs to be said.  With the release of the CPI data on Friday, the rate of inflation continues to rise, with the year over year increase totaling 8.6% in May, following the 8.3% rate in April.  This is the highest rate of inflation for the past 40 years.  The overall rate is troubling enough, but looking at the breakdown, the items that are causing the most pain are energy (34.6%) and food (10.1%), two items that directly affect all of us.  We all need to use gas to drive, get deliveries, goods to be shipped, or materials to be made, including plastics and such.  Food increases are felt every time we go to the grocery store, with the hardest hits coming to those on the lower income levels, where the food budget is already a large portion of the monthly expenses.  

https://www.bls.gov/cpi/

This direct pain at the gas pump and at the grocery store directly affects consumer sentiment, which will drive down demand as people begin to cut back on their discretionary spending in order to afford these other categories.  Target stated last week that their shoppers are eschewing discretionary items such as televisions and patio furniture. New home sales are slowing, existing homes are staying on the market longer, and the cruise lines are showing slowing demand.  These pullbacks can push us into or closer to a recession as the consumer is a large part of the U.S. economy.  

This can be seen in the consumer confidence numbers.  As reported from the Conference Board, “the US Consumer Confidence Index® decreased slightly in May, following a small increase in April. The Index now stands at 106.4 (1985=100), down from 108.6 in April (after an upward revision). The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—declined to 149.6 from 152.9 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—declined to 77.5 from 79.0.”

The Federal Reserve is meeting this week, with the expectation that they will raise interest rates by 0.50%, but there are also some economists saying there is a chance of a 0.75% increase instead, as the Fed tries to tame this rampant inflation.  Unfortunately, the Fed only has so much control and power to lower inflation, since the majority of the issues are higher energy prices and food, which are caused by supply constraints, not demand.

Their target long term rate is stated to be near 3%, so even after this increase this week we are still well off of that number, hence we should expect many more increases over the next few months/year, which is intended to slow down demand to lower this inflation.

The market was down all week but really sold off strong on Friday after the release of the CPI data, with the Dow, S&P 500, and Nasdaq down -4.96%, -5.66%, and -7.05%, respectively for the week.  This heavy drop came on the heels of a down week last week and continued weakness for the year.  The markets are now down 14.19%, 18.67%, and 28.38% year to date, respectively. 

Dividend News This Coming Week:

This week Oracle (ORCL) and Kroger (KR) report earnings.  PPL, UTZ, VICI, GMRE, CARR and MTN have their ex-dividend dates coming this week or next. Target (TGT) announced that they are cutting the prices of items throughout their stores and canceling orders from suppliers as they adjust their inventory to get ready for Back to School and the holiday shopping season. 

Undervalued Dividend Stocks:

This week’s results of the valuation screening shows 37 companies on my tracker are now undervalued based on my 5 criteria. Three are new this week.

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) 

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, BAC, BLK, BMO, BR, DLR, ECL, HBI, HD, IIPR, INTC, ITW, JPM, LEG, LOW, MDT, MMM, MSM, NKE, ORCL, RY, SBUX, SMG, SPG, STOR, SWK, TD, TROW, TSCO, TXN, UGI, UNP, 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!