Question:
What do you think of Pepco Holdings and American Electric Power? I am torn between the two.
Answer:
Neither Pepco Holdings (NYSE: POM) or American Electrical Power (NYSE: AEP) meet our financial criteria for financial strength or safety. Pepco is an electric and natural gas energy provider to the area in and around Washington, D.C. The company has a $6.7 billion market capitalization and offers a 4.02% dividend yield. However, the dividend growth is 0%. The company’s long-term growth rate is 6.37%.
On the other hand, American Electric Power is an electric utility providing electricity to customers in 11 states from Ohio to Tennessee and from Arkansas to Virginia with a market cap of $26 billion, making it significantly larger. The stock has a 3.74% dividend yield with a long-term growth rate of 5.38%. They can also cover their dividend 1.55 times with cash, compared to Pepco, which only has cash coverage of 0.41 times, and indicates a cash-flow issue for Pepco. Additionally, American Electric Power has a five-year dividend growth of 3.84%.
If it is a question between the two, we would suggest American Electric, but again, neither meet our financial criteria for investment.
Question:
I would like your opinion on AMRI. Is this stock worthy of purchasing as a long term position at this time? Also, I have owned GRMN for several years and have about a 60% gain on it. It is held in a ROTH and is a small part of my overall portfolio. Do you recommend that I continue to hold it or take my profits and move on to another stock? If you recommend selling, what would you suggest as a replacement?
Answer:
Albany Molecular Research Inc. (NASDAQ: AMRI) performs chemistry analysis for pharmaceutical companies. It is a small company with a market cap of $495 million. Earnings have grown at 5.3% over the past five years, but the stock is very unpredictable. It is expensive according to historical price ratios. Its price to earnings is a bit distorted because of the losses it suffered in 2011 and 2012. Its price-to-book is 2.32 versus its five-year average of 0.89. However, it is reasonably priced according to peers. The stock does not meet Henssler criteria. It is not widely followed by analysts, so there is a lack of information available, compared to other companies. It is not heavily indebted as you would expect from a small company. Its debt-to-equity is 50.1%. We recommend you do not buy this company.
Garmin Ltd. (NASDAQ) provides GPS products for navigation, communication and sports devices. While it has attractive margins relative to peers, sales are slowing with long-term growth estimated at 6%, versus the S&P 500, which is expected to grow earnings at 8% over the next 12 months.
You can get GPS devices on your phone and a host of other devices, so it seems to have a business model that has no long-term sustainability. The company has a dividend yield of 3.4%, but is expensive on a price-to-earnings and a price-to-earnings to growth basis. While Garmin does meet Henssler’s investment criteria, we recommend you sell if you will have no tax implications. We recommend you consider buying Apple, Inc. (NASDAQ: AAPL) that has a P/E of 14.17, a PEG of 0.9, estimated long-term growth of 15.02%. You may also consider Google, Inc. (NASDAQ: GOOG) which has a PEG of 1.03 and estimated long-term growth of 18.6%.
At Henssler Financial, we believe you should Live Ready, and that includes understanding the fundamentals of the stocks you are invested in. If you have questions regarding your holdings, 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.
