Raptors,

Today’s post includes no official recommendations.  Instead, I want to offer some great watch list items.  One of the best ways to find companies that are likely to outperform is to check the Price to Sales (P/S) ratio.  Ratios under one are generally considered very attractively priced.  We don’t want to just run a screen on the entire market though.  We want to limit ourselves to companies with a long history of rewarding shareholders.  The below screen is of all Dividend Aristocrats (S&P 500 components with at least 25 consecutive years of dividend increases) that are trading below sales.

RankCompanyTickerP/S
9Exxon Mobil CorporationXOM0.97
8Genuine Parts CompanyGPC0.95
7Family Dollar Stores Inc.FDO0.83
6Nucor CorporationNUE0.67
5Target Corp.TGT0.64
4Wal-Mart Stores Inc.WMT0.57
3Sysco CorporationSYY0.48
2Archer-Daniels-Midland CompanyADM0.37
1Cardinal Health, Inc.CAH0.29

This is one high quality list when you consider we started by going to the bargain bin!  Just giving this list a cursory view, I see that I like XOM (commodity price weakness is our friend here), TGT and WMT (never bet against the American consumer), and ADM (increasing frequency of climate events bodes well for farm commodity pricing.)  I don’t like NUE at the current time.  Steel, especially recycled steel like Nucor deals in, is very cyclical and at the mercy at global economic growth.  There are still too many question marks regarding demand for steel going forward.

Raptors who want to get into XOM, TGT, WMT, or ADM, might try improving their entry price by writing puts for income.  For each 100 shares you want to earn, write one contract.

TickerStrikePremiumExpiryDaysAnnualized
XOM915.2613-Mar-15         3855.52%
TGT752.3620-Mar-154525.52%
WMT851.7720-Mar-154516.89%
ADM481.2520-Mar-154521.12%

Some of those are very high yields.  You should be cautious as the market is telling you people are willing to pay dearly for insurance on those names.  Thus, the downside risk is perceived to be high.  The way you get comfortable with the possibility of the trade moving against you, is to only write puts if you would be happy to own shares at the strike price (because eventually, you will.)  Personally, if I was looking to deploy $8,500 in cash today, I’d write the 85 Walmart put.  That is a great price and a raptor can get mighty fat at almost 17% annualized returns.  Like my old Finance professor from Grad School days used to say “Daddy always said, ‘Bulls n bars both make money but hawgs always get slaughtered’.”  (Perhaps I should note “Daddy” was also a PhD. professor of Finance from West Texas.)  The point of that very folksy saying is “don’t get greedy!”

Devour your prey, raptors!

Nine Dividend Aristocrats Trading For Less Than Sales

Never miss another opportunity to devour prey!

2 thoughts on “Nine Dividend Aristocrats Trading For Less Than Sales

  • February 4, 2015 at 12:42 am
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    Hi, I am learning to write puts to improve entry prices. So thanks for the good advices.
    I totally agree with you that “The way you get comfortable with the possibility of the trade moving against you, is to only write puts if you would be happy to own shares at the strike price (because eventually, you will.)”

    Reply
  • February 4, 2015 at 1:01 am
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    MU,

    So glad to have you here! Writing puts or doing covered calls works like magic. It was the biggest contributor to my early retirement. Too many people are needlessly afraid of this power risk reducing and income producing strategy.

    Reply

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