Question:
What three stocks in the Dow would you buy right now?
Answer:
We like some the big oil players, Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX). Both companies are among the most attractively valued Dow stocks, when looking at their price to earnings ratio. Chevron trades below 10 time earnings, while Exxon is priced at about 11 times earnings. The market as a whole trades at about 16 times earnings. Exxon is a little pricier because its growth prospects are a little rosier. Chevron pays investors a slightly better dividend, as it yields about 3.3% versus Exxon’s 2.8% dividend.
The Energy market has faced some turmoil recently with unrest in the Middle East, which can disrupt supply and operations. There is also the shale gas revolution, flooding the market with new supplies, which can drive prices lower, and the Obama Administration appears overly friendly to Green and Clean energy. However, earlier this week the Mexican Government unveiled a bill to end the country’s 75-year monopoly on oil and gas production, and should be letting in private firms to drill. We believe major players like Exxon and Chevron may have the inside track to setting up a partnership with the Mexican government given their technological expertise.
We also like Technology plays like International Business Machines Inc. (NYSE: IBM) and Intel Corp. (NASDAQ: INTC). IBM looks attractive based on valuation, trading at a discount to both its five- and 10-year average price to earnings. Furthermore, it trades at a significant discount to its sector average PE of 15.60. The shares are down 1.56% year-to-date, significantly underperforming the market, which may make it an opportune time to buy. IBM has made moves via acquisitions to expand its cloud offerings most recently with its acquisition of one of the largest cloud infrastructure providers, SoftLayer. As the computing world becomes more and more cloud based, IBM stands to benefit, since the company’s road map focuses heavily on cloud computing as a key revenue driver. The company continues to return cash to shareholders via dividends, which it recently boosted for the 18th consecutive year, as well as increased buybacks. When information technology spending does finally return, IBM should likely reap the benefits.
Intel Corp. is the world’s largest chipmaker in terms of revenue and units shipped. Shares have come under pressure recently due to a continued weakening in PC sales, Intel’s main business. While the PC business is mature and isn’t likely to see much growth, we don’t believe that the traditional PC is going away. What investors can expect from Intel, however, is a consistent and above average dividend. The shares currently yield more than 4%, and the company has grown dividends by an average of 26% over the last 10 years. Not only is the dividend above average, but it is well covered meaning that Intel generates sufficient earnings and cash flow to cover the payment.
In the Financial sector, we feel JPMorgan & Chase Co. (NYSE: JPM) is in a good space. We own Travelers Companies, Inc. (NYSE: TVR), an insurance company. However, insurers may have a more difficult time now with interest rates rising as a considerable part of their portfolios are in bonds. We deem Travelers a strong hold if you already own it.
Question
I’ve been looking at REITs lately. What do you think of REITs as an investment right now? Do you like PEI?
Answer
Real estate investment trusts (REITs) have had a good run in the past three and five years. As a result, the publically traded REIT space looks to be pretty pricy as a whole. REITs need to be evaluated from a price to funds from operations basis, as opposed to earnings to account for depreciation. Looking at price to FFO, REITS are at a 15-year high. Additionally, the dividend yield for the industry is near a 15-year low. It appears that many investors have anticipated better days for REITs and have piled in.
Pennsylvania REIT (NYSE: PEI) is a retail REIT, with an investment focus on retail shopping malls located in the eastern half of the United States. PEI is one of the more attractive REITS that meets our investment criteria. PEI’s dividend is in line with the REIT average at 4%. If you own PEI it should be OK to hold; however, we do not recommend buying it.
At Henssler Financial we believe you should Live Ready, which means understanding your investment holdings. If you have questions regarding your investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
