Outlook for December 2013

The holiday season is almost upon us. The markets continue to rise to all-time highs and even the perma-bears are throwing in the towel and joining in the rising frenzy. No one really knows where the market will go from here, but there have been a lot of calls of a severe corrections from various analysts.  Rise or fall, I will be staying invested while maintain some cash position in my portfolio. If there is a correction, it will provide me with an opportunity to pick up more stocks at a discount.

My Holdings

The rise of the stocks has resulted in slim pickings for good value in the US market. However, I have been recently looking at the forward P/Es of my holdings to get a clue of how the stocks are currently priced based on future earnings (read my post about this topic). From the initial look, it appears that Archer Daniels Midland (ADM), Qualcomm (QCOM), The Southern Company (SO) and Thomson Reuters (TRI) have the largest difference between current P/E and Forward P/E.

Archer Daniels Midland (ADM) manufactures and sells protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol and other value-added food and feed ingredients; and processes oil-seeds, corn, wheat, cocoa and other agricultural commodities. ADM also engages in futures commission merchant business. ADM is is a dividend champion which has been raising dividends for 38 years. ADM has a 5-yr dividend growth rate (DGR) of 8.8% and a 10-yr DGR of 12.3%.

Qualcomm (QCOM) designs, develops, manufactures and markets digital communications products and services base don CDMA, OFDMA and other technologies. QCOM is the leader in ARM-based processors which are found in the bulk of Windows, BlackBerry and Android devices. QCOM has been raising dividends for 11 years and has a 5-yr DGR of 12.3%

The Southern Company (SO) operates as a public electric utility company. SO is involved in the generation, transmission and distribution of electricity through coal, nuclear, oil and gas, and hydro resources in the states of Alabama, Georgia, Florida and Mississippi. SO has been raising dividends for 12 years; has a 5-yr DGR of 4% and 10-yr DGR of 3.7%.

Thomson Reuters (TRI) sells electronic content and services to professionals, primarily on a subscription basis. The company operates in four segments: Financial & Risk, Legal, Tax & Accounting and Intellectual Property & Science. TRI has been raising dividends for 20 years; has a 5-yr DGR of 5.5% and 10-yr DGR of 6.1%.

My Watchlist

I am also considering various stocks that are not currently in my portfolio.
Illinois Tool Works (ITW) and Parker-Hannifin Corp (PH) are a play on the industrial sector. I am currently under-invested in the industrial sector and am looking for more exposure on that front. ITW and PH are both dividend champions who have been raising dividends for 39 and 57 years respectively. ITW has a 5-yr DGR of 9.9% and a 10-yr DGR of 12.6%. PH has a 5-yr DGR of 16.2% and 10-yr DGR of 12.9%.HCP Inc. (HCP) invests in properties serving the healthcare industry including sectors such as senior housing, life sciences, medical offices, hospitals and skilled nursing. HCP is a dividend champion that has raised dividends for 28 years; has a 5-yr DGR of 2.4% and a 10-yr DGR of 2.1%.

Kinder Morgan Inc. (KMI) owns and operates energy transportation and storage assets in US and Canada. The company owns an interest in or operates approximately 75,000 miles of pipelines and 180 terminals. KMI has a reputation for its high payouts and has a 5-yr DGR of 10%.Procter & Gamble (PG) and Unilever PLC (UL) are giants in the consumer packaged goods field. PG has five segments – beauty, grooming, healthcare, fabric care and home care. UL has four segments – personal care, foods, refreshment and home care. PG has been raising dividends for 57 years; has a 5-yr DGR of 10.2% and a 10-yr DGR of 10.8%. UL has been raising dividends for 25 years; has a 5-yr 7.07%.

Walgreen Co (WAG) operates drugstores in the US. The company provides access to consumer goods and services, pharmacy, health and wellness services across the US. WAG is a dividend champion that has been raising dividends for 38 years. WAG has a 5-yr DGR of 23.7% and a 10-yr DGR of 21.2%.
Realty Income (O) is a REIT that invests in commercial real estate across the US. O has long-term (10-20 year) leases with tenants that are spread across 200 companies and 47 industries. O has been raising dividends for 19 years; has a 5-yr DGR of 1.5% and 10-yr DGR of 4.2%.
Textainer Group Holdings (TGH) engages in purchase, ownership, management, leasing and resale of a fleet of marine cargo containers worldwide. TGH was recently downgraded from Outperform to Market Perform, but there is still plenty of potential for an upside. TGH is a Dividend Challenger that has been raising dividends for 7 years and has a 5-yr DGR of 52.1%.

Index – China ETF

I am also considering adding a new index fund to my portfolio to track the Chinese market/economy. Read about my comparison of available ETFs here.
What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist?
Disclosure: My full list of holdings are available here.

10 thoughts on “Outlook for December 2013

  1. I just added more O last week so I’m good with that one. Currently also own HCP, PG, KMI and WAG. I should have added some ITW earlier this year, just wish that yield would be higher. I’m still looking for a chance to pick up some UL to add to my consumer staples and international diversity. Overall I’m not that excited about the opportunities so I’m going to try and hold on to my cash. I’ve got 2 puts that expire later this month that should be executed so I’ll be picking up another 100 shares of O and 100 shares of CSCO.

    • PIP,
      Sounds like you hold all the equities mentioned on my watchlist. All excellent companies, imo.
      The REITs have taken a hit this year and Im hoping that the end-of-year tax-saving moves by traders/speculators might be a good opportunity to pick up O or HCP.

      Thanks for stopping by and the input.
      R2R

  2. I like your list of possibilities, especially O, KMI, and TGH (I own their competitor TAL). As for me, I’m holding off on any purchases with some of my other life events taking priority (buying a house), but will absolutely continue to monitor and invest when the opportunities and cash present themselves.

    • I am also on the same boat, writing2reality. Plan is to buy a house either next year or the year after. Meanwhile, I continue to invest depleting my cash reserves in the investment accounts.
      I havent checked TAL….will check them out. Thanks for the info.

    • D-S,
      You are right. If and when the Fed increases the interest rates, REIT (including bonds & utilities) suffer. The bad part is that the market keeps such a close on the Fed’s intent that even a slight suggestion causes moves, even though the actual rates wont be rising anytime soon. I think the current estimates are for 2015.
      Anyway, these moves can cause some short term pains, but over the long term – both O and HCP have great prospects. Meanwhile, we can enjoy the delicious 5.7% yields on both O and HCP.

      regards

  3. I was surprised to see a number of stocks I’ve been watching, mentioned in your post! I recently added KMI, O, TGH and UN (instead of UL). I like your other stocks too, but too hot for my taste!

    • Hi moneycone,
      Good moves that you have managed to pick up KMI, O, TGH. I intend to go with UL instead of UN in order to avoid paying the withholding taxes. The tax treaty between UK, and Canada allows me to buy and hold UK-listed equities in retirement accounts without paying withholding taxes. I think the US has the same deal with UK (which makes investment in UL better than UN). Are you residing somewhere else that makes holding UN a better option for you, rather than investing in UL?

      regards

  4. A nice mix of stocks on your watch list. I recently bought HCP and O in the REIT space. I think the declines in their stock prices already factor in much of the higher interest rates we’ll eventually see. In Morningstar’s latest Dividend Investor newsletter, Josh Peters wrote that O (trading around $40 at the time) is priced as if interest rates were already in the 4-5% range.

    I also own ITW, KMI, and PG on your list. KMI is one of the largest positions in my portfolio, so I’m reluctant to keep buying it. ITW and PG would need to come down a bit for me to consider increasing my positions.

    • Hey DGM,
      I did notice that you bought both HCP and O lately. That interesting, I wasnt sure if the higher interest rates already priced in. I will have to check out the article you mentioned. Thanks for the tip.

      I am on the same boat as you on ITW and PG – they are too highly priced at current levels, so I think I will be turning my focus more towards the other stocks I mentioned here.

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