Sunday, December 16, 2007

watchlist review - what's cheap?

I am currently now sitting on about 3% cash, so I am starting to look at where I might be able to deploy it. I have spent some time updating my watchlist, while having a look at where the stocks that I watch are trading. Some stocks that I watch are in earnings decline, so they might look really cheap but nobody knows how far down the rabbit hole goes. Others have shown little or no sign of earnings decline, and yet still look cheap. These have potentially less downside risk at their current levels in my opinion*. Here is how the list breaks out currently:

Cheap Stocks (ranked cheapest first)
  1. Citigroup (C) - in earnings decline
  2. Lowes (LOW) - in earnings decline
  3. Wells Fargo (WFC) - in earnings decline
  4. Reitmans (RET.A) *
  5. Bank of America (BAC) - in earnings decline
  6. Home Depot (HD) - in earnings decline
  7. Telus (T.A) *
  8. Manulife (MFC)*
  9. Bank of Nova Scotia (BNS)*
  10. Royal Bank of Canada (RY)
  11. 3M (MMM)

Several others would be deemed to be 'Fairly Valued' including General Electric (GE), Johnson & Johnson (JNJ), Walgreen (WAG), Shoppers Drug Mart (SC), Leon's Furniture (LNF), Sun Life (SLF), Great West Lifeco (GWO), IGM Financial (IGM), Bank of Montreal (BMO), TD Bank (TD), Canadian National Railway (CNR), Canadian Pacific Railway (CP), Toromont (TIH), etc.

Expensive Stocks (ranked most expensive first)

  1. Colgate Palmolive (CL)
  2. Pepsico (PEP)
  3. TransCanada Corp. (TRP)
  4. McDonalds (MCD)
  5. Automatic Data Processing (ADP)

I think I am going to take a closer look at the stocks marked with an asterisk* above. These are stocks that are showing up as being cheap, but yet don't have much of a negative catalyst really impacting the stock as much as the others.

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Middle Class Millionaire said...

I always enjoy going over your “cheap lists” and am looking forward to your analysis of the askerik’ed names (particularly T and RET.A)

Sami said...

I like MFC. I have looked at it although briefly and I want to do more research on it.

It got a great management, geographic diversification, competitive advantage in the scale of its group benefit plan contracts (switching cost and research cost is high for users to switch), great margins, low cost of capital and good return on investment.

I would be interested in your thoughts?

MG said...

sami, It is hard to find fault with MFC. They are one of the best dividend growers going. There presence in Asia should be the real kicker to growth. I think there may be a buying opportunity coming though if the share price suffers upon their next large acquisition.

Anonymous said...

Appreciate your insights, I'm also looking at MFC and RET for the same reasons you are. I think MFC may drop with the next quarterly results showing the impact of the hight dollar, and i'm nervous about the US economy...


Thicken My Wallet said...

RET paid a special dividend in 2002 and 2005 leading many to believe that it will do the same in 2008. I have it on my watch list as well.

I own MFC- when money moves out of banks and wants to stay in financials, it goes to insurance. Thus, it may be a safe stock as the subprime story continues to play itself out.

Anonymous said...

Your portfolio is very similar to mine, the only thing that causes me a bit of concern is diversifcation. Take away the financials, consumer, I have a few rails, ADP, Toromont etc. (Utilities are all expensive based on my calc's).

Would you ever consider buying a more expensive stock, just to get a bit of diversification. I want to add some CNR and ADP, just been waiting a while for the right price.

MG said...

tmw, interesting about the special dividend, I did not know that.

anon, Consumer products and financial combined still make up less than 50% of my portfolio (32% + 14%). I agree that Canadian utilities are expensive right now.

Joe said...

What do people think of DB?

The dividend looks good. I have not heard any one talk about it.