The following companies are on my watch list for November, 2016. There are two main components to getting on my monthly watch list – 1. pass all of my screening criteria and 2. appear to be undervalued.
Below are the companies that made the cut.
Cardinal Health (CAH):
- P/E Ratio: 15.90
- Payout Ratio: 41.56
- Yield: 2.61
- Consecutive Dividend Increases (Years): 20
- Fair Value: $78
- (+/-): 16% undervalued
Cardinal Health is a products and services company in the healthcare sector. CAH operates in two segments – pharmaceuticals and medical – although the pharma business is 90% of revenues while the medical segment is only 10% of revenues. The pharmaceutical division distributes both branded and generic drugs to retail stores/pharmacies and hospitals. The medical division distributes surgical and laboratory supplies to hospitals, surgery centers and clinics through the U.S., Canada and China.
Cardinal Health has increased its dividend for 20 straight years. Currently the P/E ratio is well below the 5yr average of 26.7. I have a fair value for CAH of $78, so currently the company is 16% undervalued.
International Business Machines (IBM):
- P/E Ratio: 12.53
- Payout Ratio: 45.64
- Yield: 3.64
- Consecutive Dividend Increases (Years): 21
- Fair Value: $159
- (+/-): 4% undervalued
IBM in a technology company operating in 5 distinct segments: Global Technology Services (GTS), Global Business Services (GBS), Software, Systems Hardware and Global Financing. Recently the company has invested heavily in the cloud and artificial intelligence (A.I). IBM believes these types of segments are the future of the company and will stabilize (and eventually grow) revenues. The cognitive services group, where A.I and Watson reside, grew 5% year-over-year. Cloud services grew 55% within the technology services segment year-over-year.
IBM has increased its dividend for 21 straight years. Currently the P/E ratio is below the 5yr average of 12.9. I have a fair value for IBM of $159 per share, so currently the company is 4% undervalued.
- P/E Ratio: 13.35
- Payout Ratio: 46.60
- Yield: 3.49
- Consecutive Dividend Increases (Years): 49
- Fair Value: $74
- (+/-): 10% undervalued
Target is a large retailer in the discount retail industry aiming to provide everyday essentials at low prices throughout the United States. The company operates in 5 main segments: Household essentials, Food and pet supplies, Apparel and accessories, Hardlines and Furnishing and decor. In addition to its 1,800 physical stores TGT also operates a large ecommerce segment where you can purchase its items online as well.
Target has increased its dividend for 49 straight years. Currently the P/E ratio is below the 5yr average of 17. I have a fair value for Target of $74 per share, so currently the company is 10% undervalued.
These are the companies that I’m watching this month and will likely make a purchase in the near future. All three are undervalued so I would be comfortable making a purchase around current prices, but if any of them were to dip a little bit around the election – that would be fantastic!
What’s on your watch list this month?
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