As I do every month I will be investing here in a couple of days after the end of the month pay check gets dealt out. While I preach research and due diligence on any company I do understand that fifteen days is not a heck of a lot of time to find, research, and finally purchase a company that you believe is undervalued. That being said I am going to show you the three companies that I will be researching to purchase in my July 15th transaction. This post is not an in depth valuation but instead a small glance at what has caught my eye and I will be researching.
Retail that isn't Retail?
When I think retail I think going to a mall or strip mall and buying something from a store that I probably could just get online for much, much cheaper. That is one reason that the current retail industry has been getting hammered lately, a trend that could continue. Where then in retail is there value? Tanger Factory Outlet Centers, Inc. (SKT).
SKT has a couple of things going for them. First those that fill their spaces mainly sell high-end merchandise at a discounted price. This is something that has been synonymous with outlet stores since their inception. This type of merchandise combined with the "experience" that SKT strives may make it a much safer from the Amazon (AMZN) crunch than most retailers.
Second SKT has had pretty much the same percentage of occupancy in their outlets since 2012. Add to this an increased revenue every year during that time, debt that matures primarily after 2020, and the fact that they actually own most of their properties outright, and I like the proposition of continued success.
Finally we come to the dividend, which stands at a robust 5.15%. While SKT does have a payout ratio just above 50% (a bit higher than I would like) they have managed to increase their dividend for 24 straight years, something that shows they are committed to their shareholders.
They're Back! (In my P/E Range)
While everyone has been going tech crazy and watching semiconductor companies sky rocket into new highs there is one company that recently took a hit and landed back on my radar, Intel (INTC).
While you may see INTC as a company that has had a non-impressive EPS history over the recent years I see them as a company that has been positioning themselves to be a power in the autonomous driving push. Between the 2015 acquisition of Altera, a reprogrammable chip company, and the recent acquisition of Mobileye, Intel acquired 5 companies dedicated to creating autonomous cars. While many companies are working on autonomy, Intel is working to create an open platform that can be used by any of the auto makers, which would be very valuable.
What does the dividend look like? It sits at 3.2% with a 38% payout ratio and 2 years of growth. While the growth may not be there, Intel has consistently paid a dividend for just over 20 years.
Elementary, my dear Watson
Okay so I've given you a REIT that could get crushed by Amazon and a semiconductor company that has continued to decline. Now what could I possibly follow up with for my third recommendation? How about International Business Machines (IBM).
So IBM has taken a massive hit of late and for right reason in my opinion. At $180 IBM had become as inflated as many of the other tech companies, trading at multiples that, in my opinion, made it undesirable. This obviously was a view that was shared by Warren Buffet as he promptly exited out of nearly a third of his holdings. While most people saw the guru selling and decided that they too would exit what they never took into account was the fact that he still owns a healthy chunk (around 50 million) and he stopped selling at around $160. Basically all Warren said was it was overpriced at $180 but not at the multiples at $160. I would even wager a bet that he may be adding again if it breaks $150.
Let's get away from IBM and the Buffet trade for a second and actually talk about what I like and why it is on this list. First IBM has really changed from sticking to the legacy business and trying to push forward in the cloud game. I like the fact that IBM is only predicting single digit growth because it shows the caution they are using when providing guidance. They actually had around 12% growth in Q1 in this sector and after signing a massive deal with a UK Bank it seems that revenue could be growing faster.
Second, I love the dividend. IBM currently sports a 3.9% dividend with a 43% payout ratio. If that doesn't sound good enough then how about the fact that IBM has been raising dividends for the last 17 years!