Monday, May 1, 2017

6 Stocks Currently Trading Below their Fair Value

Over the last 12-18 months, there have been several prognosticators saying dividend stocks are extremely over valued. In many cases, I would tend to agree. This has been reflected in my weekly stock analyses. If so, what's an investor to do? When is the right time to start investing?

If you are a trader, peaks and bottoms are very important. You want to sell at the peak and buy back into the market at the bottom and wait for the next peak. The problem is peaks and bottoms are much easier to identify once some time has passed. An alternative to this market timing approach is a long-term buy-and-hold strategy that focus on dividend stocks selected using a value oriented approach.

Not many dividend stocks are selling at a discount to their calculated fair values. However, there are still some out there. Here are several big-name stocks for your consideration:

Microsoft (MSFT), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite.
- Calculated Fair Value: $79.39
- Recent Price: $67.28
- Yield: 2.3%

Texas Instruments Inc. (TXN) is one of the world's largest manufacturers of semiconductors, this company also produces scientific calculator products and DLP products for TVs and video projectors.
- Calculated Fair Value: $111.70
- Recent Price: $81.10
- Yield: 2.5%

Lockheed Martin Corp. (LMT) is the world's largest military weapons manufacturer, and also a significant supplier to NASA and other non-defense government agencies. LMT receives about 93% of its revenues from global defense sales.
- Calculated Fair Value: $335.71
- Recent Price: $275.32
- Yield: 2.6%

Cisco Systems, Inc. (CSCO) offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols.
- Calculated Fair Value: $50.78
- Recent Price: $33.23
- Yield: 3.5%

AT&T Inc. (T) provides telephone and broadband service and holds full ownership of AT&T Mobility.
- Calculated Fair Value: $44.49
- Recent Price: $40.00
- Yield: 4.9%

Omega Healthcare Investors Inc. (OHI) is a real estate investment trust (REIT) that invests in income-producing healthcare facilities, mainly long-term care facilities located in the United States.
- Calculated Fair Value: $46.66
- Recent Price: $34.18
- Yield: 7.4%

The beauty of an income focused long-term, buy-and-hold strategy is the future declines are not necessarily a bad thing. This allows you to buy more shares at a lower price which in turn will provide you with a higher yield. There isn't going to be a giant neon sign in the sky that tells you, "The market has now reached its top or bottom."

Needless to say, we need to consider a lot more than just valuation when making a stock purchase. As  investors in dividend growth stocks, I would argue that dividend fundamentals are more important than valuation. As long-term buy and hold investors, we can over-come paying too much for a great stock with time. However, time is unlikely to help a fairly valued stock with poor dividend fundamentals.

Full Disclosure: Long OHI, T, CSCO, LMT, TXN, MSFT. See a list of all my Dividend Growth Portfolio holdings here.

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- 3 Higher-Quality, High-Yield Dividend Stocks
- 10 Stocks With Sustainable Dividend Growth
- 12 Dividend Growth Stocks With A Good Yield/Growth Mix
(Photo: Gerard79)


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