Buying Stocks on the Cheap
I like beaten-down stocks with solid dividends. But management counts, too.
When last we left our heroine, she was anxiously waiting for Kiplinger's trading restrictions to lapse so that she could snap up a bunch of bargain-priced blue-chip stocks before too many other investors realized they were being far too dismissive of these great companies.
The market was kind enough to tumble just as the trading restrictions expired, making this Practical Investor feel like a kid in a candy store. Lockheed Martin (symbol LMT) at $76.70? Yes, please! Chevron (CVX) at less than 8 times earnings? Sweet! Apple (AAPL) at $390 and Microsoft (MSFT) at a shade over $25? I bought them all.
Good moves. The timing was fortuitous. From December 12, the day of my latest buys, Apple rose 8%, Chevron gained 6%, Lockheed climbed 4%, and Microsoft soared 11% (all figures are as of January 6 and include reinvested dividends). Over the same period, Standard & Poor's 500-stock index gained 4%.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What about the rest of the portfolio? You can see all of my buys here. (I haven't sold anything yet). But before you start to check up on my performance, you might want to learn how I'm trading and keeping score.
I buy stocks in bunches and measure their performance against Vanguard Total Stock Market ETF (VTI). By looking at this exchange-traded fund, I can see how individual stocks have fared in comparison with a volatile market. Because I launched this portfolio just a few months ago, I have only short-term results to assess. A year from now, we'll be able to make more-meaningful judgments about my picks.
In the meantime, let's see what my picks have done so far. Two of my three initial purchases -- Intel (INTC) and Spirit Airlines (SAVE) -- gained 11% and 4%, respectively; Corning (GLW) fell 2%. My ETF has lost 1% since October 27, when I bought the next group of shares. Meanwhile, Johnson & Johnson (JNJ) was flat, PPL Corp. (PPL) fell 2%, and KKR Financial Holdings (KFN) rose 7%.
So far, three of the ten stocks I've purchased haven't beaten the index. The worst performer -- Corning, a maker of shatter-resistant glass for phones and TVs -- got slammed when the company announced in November that it expected revenues to decline in the fourth quarter. But with the stock, at $14, selling for a bit more than 6 times the past 12 months' earnings per share, it doesn't strike me as a time to get out.
Corning's decline notwithstanding, all of my picks share common themes: I seek to buy good companies when they sell at cheap prices and try to cover my bet by favoring those that pay rich dividends and generate enough cash to pay them. In fact, half of the stocks in my portfolio owe a portion of their return to reinvested quarterly dividend payments that bought me more shares.
But if historically cheap prices and generous dividends are key, why am I not pouncing on a stock such as Hewlett-Packard (HPQ), which sells for less than 7 times earnings and yields 1.8%? Because of the amorphous “governance” aspect of stock selection that I wrote about last month.
A company's board of directors is supposed to serve as a steward of investor assets, overseeing top management and ensuring that shareholder money is well spent. HP's board has proved to be a horrible steward. It has hired lousy executives, then lavished them with millions of dollars after firing them. In 2010, Mark Hurd walked away with $23 million, including $12.2 million in severance. The board fired Hurd's replacement, Léo Apotheker, after just ten months on the job, awarding him a parting package estimated at $25 million.
Most corporate waste flies under the radar. So when it jumps out at you, you know the company's directors can't be trusted with your hard-earned money. In HP's case, that makes an apparently cheap stock not cheap enough.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
Why Tesla Stock Is Soaring After a Q1 Earnings Miss
Tesla came up short of analysts' expectations for its first quarter, yet its stock is roaring higher today. Here's why.
By Joey Solitro Published
-
Eight Easy Ways to Save Money Without Compromising Your Lifestyle
Saving money can be as simple as a quick phone call.
By Kiplinger Advisor Collective Published
-
Stock Market Today: Nasdaq Soars Ahead of Tesla Earnings
The EV stock rose nearly 2% ahead of its highly anticipated Q1 earnings report, due after tonight's close.
By Karee Venema Published
-
Stock Market Today: Markets Rebound Ahead of Big Week for Earnings
Equities rallied on easing geopolitical tensions, upcoming quarterly results.
By Dan Burrows Published
-
Stock Market Today: Nasdaq Spirals as Netflix Nosedives
A big earnings boom for credit card giant American Express helped the Dow notch another win.
By Karee Venema Published
-
Stock Market Today: S&P 500, Nasdaq Extend Losing Streaks
The two indexes have closed lower for five straight sessions.
By Karee Venema Published
-
Stock Market Today: Dow Slips After Travelers' Earnings Miss
The property and casualty insurer posted a bottom-line miss as catastrophe losses spiked.
By Karee Venema Published
-
Stock Market Today: Stocks Stabilize After Powell's Rate-Cut Warning
The main indexes temporarily tumbled after Fed Chair Powell said interest rates could stay higher for longer.
By Karee Venema Published
-
Stock Market Today: Stocks Reverse Lower as Treasury Yields Spike
A good-news-is-bad-news retail sales report lowered rate-cut expectations and caused government bond yields to surge.
By Karee Venema Last updated
-
Stock Market Today: Nasdaq Leads as Magnificent 7 Stocks Rise
Strength in several mega-cap tech and communication services stocks kept the main indexes higher Thursday.
By Karee Venema Published