4 Stocks On My Shopping List February 14, 2013Posted by Ishmael Chibvuri in Latest Articles!!!.
"It is one of the most beautiful compensations of this life that no man can sincerely try to help another without helping himself."
Ralph Waldo Emerson
That’s one of the reasons I enjoy being a contributing writer, analyst and editor. It feels very encouraging to recommend companies like General Electric (GE) before it made its big gains this year.
Of course I’m often too early in what I buy for my own accounts and write about for readers to consider. Recently I wrote about "Buying What is Cheap, Hated and in an Uptrend". It hints of not only my approach to investing but the approach of far more prescient folks.
Here at Seeking Alpha we often see articles that reflect insight, research and thoughtful opinions. I personally am impressed when the authors are willing to "eat their own cooking" and either have already invested in what they recommend or will soon do so.
With that in mind I want to share with you some of the stocks I want to own when the price looks more attractive. As the late Benjamin Graham (the mentor of Warren Buffett) wrote in his classic book The Intelligent Investor, "It is far from certain that the typical investor should regularly hold off buying until low market levels appear…except when the general market level is much higher than can be justified by well-established standards of value."
As the following chart demonstrates, we may be nearing a temporary inflection point where the general market level (as illustrated by the S&P 500) is at least somewhat higher than can be justified.
What’s illustrated in this 2-year chart of the SPX gives both value and growth-at-a-reasonable-price investors room to be encouraged. The very popular RSI or Relative Strength Indicator, is a momentum oscillator that compares the strength of gains against the strength of losses over a given period. RSI always ranges between 0 and 100.
Yes, the broader market could go higher from current levels, but since the October 2012 lows the SPX has risen almost 40% and is approaching the technical "overbought" RSI levels above 70. Now is an auspicious time to prepare to buy great companies at lower prices.
Here are some of the stocks I’ll be buying when prices fall to my buy-limit levels. I’d like to buy Eaton Corp. (ETN) at $55 or lower. On January 16th intra-day ETN traded as low as $55. It’s hard to overstate the many reasons why ETN is a great company. Smart leadership and an ability to maximize acquisitions like Cooper Industries is a good place to start.
The company has more ways to turn a profit than ever before. It is a shareholder-friendly company paying a sustainable dividend. If the shares are purchased near $55, the yield-to-price of the current dividend rises to around 2.76%.
With a global network of loyal customers including governments, utilities, major industrial manufacturers and the energy complex it’s no wonder that ETN’s Chairman and CEO has accumulated 577,708 shares worth more than $34.66 million. That’s a "vote of confidence" I can identify with.
A company that I already own some shares of but want to buy a considerable amount more is Occidental Petroleum (OXY). This is a company that is ripe for an "activist intervention", as was stated recently in a well-written Bloomberg article.
We’ve seen what some well-timed replacement of board directors and spin-offs of divisions can do to help a stock’s valuation. A great example of this in the energy sector is Chesapeake Energy (CHK) and one of my core holdings Procter & Gamble (PG).
OXY which gets about 75 percent of sales from oil and gas wells and the rest from chemicals and pipelines, trades at a discount to some peers because, as Bloomberg pointed out "…investors don’t recognize it either as a so-called integrated company such as Exxon (XOM) or a pure-play energy producer such as Apache Energy (APA)" Duane Grubert, an analyst at Susquehanna Financial Group in Stamford, Connecticut, said in an interview. "Occidental would be more highly prized if it split into international and domestic businesses" Grubert said. Sixty-one percent of OXY’s oil and natural gas production in the third quarter came from its U.S. operations The company is the largest onshore oil & gas producer outside of Alaska.
As an energy producer, more than two-thirds of OXY’s production was oil or other petroleum liquids, according to the company. Most of Occidental’s U.S. output, the equivalent of 469,000 barrels a day of crude, comes from Texas and California.
In my opinion and the opinion of a growing number of analysts the rest of OXY’s operations, including its "OxyChem" subsidiary could be spun off to the enrichment of shareholders. My good-till-cancelled buy-limit order is just above $86.
Here is a 1-year technical chart of OXY showing the RSI, the 200-day moving average line (green) and the Bollinger Bands
OXY spent most of the last 12 months below the 200-day MA and if it heads down toward that level investors may be able to buy closer to $84-a-share. With its 41% operating margin and the rumors about impending activist interventions the shares are likely to hit the consensus 1-year analysts’ target price of $100 or higher.
To conclude with some other companies I hope to be buying next, I have orders in for Duke Energy (DUK), the U.S. and Latin American utility giant that reports on Wednesday Feb.13th. I like its generous dividend (4.4%) and its plan to reduce operations of coal-burning and enriched uranium power plants. I’m willing to wait till the stock corrects down to between $65 and $66 before buying my first shares.
I’d also like to buy shares of NYSE Euronext (NYX) before it is acquired by Intercontinental Exchange (ICE). I recently wrote an article on this topic alone and the reasons I hope to pick up some shares below $35-a-share.
The scope of this article doesn’t allow me to reveal some of my other buy-limit orders, but I hope to be able to share more of them in my next report. Remember that if the stock market and the SPX move higher it will "buy" you some more time to carefully consider the companies you’d like to own and the prices you’re willing to pay.