Several market observers believe the market has moved too high too fast. In a recent Wall Street Journal article Jason Zweig expressed his concern. Here are some points he made:
- The Dow Jones Industrial Average is up 46% since March 9
- In March, stocks traded as low as 11.7 times their average earnings over the previous 10 years
- Today stocks are selling at 18.4 times which is above the long-term average of 16.3 times earnings
- In March, investors feared getting crushed in a further decline
- Now all they seem afraid of is missing an even greater rally
- In August, corporate insiders sold nearly 31 times as much stock as they bought
- Investors chase past performance, buying whatever has just made the most money for other people and themselves
- 401(k) participants tend to add significantly to whichever funds they already own that have gone up the most
- Benjamin Graham in his classic book "The Intelligent Investor," wrote "the investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances."
- If you can't exercise that kind of emotional control, then by Graham's definition you aren't an investor at all
Here are five dividend stocks that are trading below their calculated fair value:
Automatic Data Processing Inc (ADP) - Analysis
Automatic Data Processing Inc. is one of the world's largest independent computing services companies, provides a broad range of data processing services.
- Fair Value: $43.57
- Recent Price: $37.50
- Yield: 3.4%
Cardinal Health Inc. is one of the leading wholesale distributors of pharmaceuticals, medical/surgical supplies and related products to a broad range of health care customers.
- Fair Value: $46.16
- Recent Price: $25.00
- Yield: 2.0%
Dover Corp. manufactures a broad range of specialized industrial products and sophisticated manufacturing equipment.
- Fair Value: $35.65
- Recent Price: $33.50
- Yield: 3.0%
Emerson Electric Co. primarily makes backup power equipment for telecom and Internet providers and users, climate control components, and electric motors.
- Fair Value: $38.39
- Recent Price: $35.75
- Yield: 3.6%
SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for food service industry in the United States and Canada.
- Fair Value: $27.36
- Recent Price: $25.00
- Yield: 3.8%
Full Disclosure: Long ADP, EMR, SYY. See a list of all my income holdings here.
Tags: [ADP] [CAH] [DOV] [EMR] [SYY]