Wednesday, July 15, 2020

5 Stocks Currently Trading Below their Fair Value

Over the last 12-18 months, there have been several prognosticators saying dividend stocks are extremely over valued. In many cases, I would tend to agree. This has been reflected in my weekly stock analyses. If so, what's an investor to do? When is the right time to start investing?

If you are a trader, peaks and bottoms are very important. You want to sell at the peak and buy back into the market at the bottom and wait for the next peak. The problem is peaks and bottoms are much easier to identify once some time has passed. An alternative to this market timing approach is a long-term buy-and-hold strategy that focus on dividend stocks selected using a value oriented approach.

Below are several big-name dividend stocks selling at a discount to their calculated fair values for your consideration:

Abbvie Inc. (ABBV) is a global research-based pharmaceuticals business that emerged as a separate entity following its spin-off from Abbott Laboratories at the start of 2013. AbbVie's key drug is Humira for rheumatoid arthritis.
- Calculated Fair Value: $242.15
- Recent Price: $99.15
- Yield: 4.9%

Exxon Mobil Corp. (XOM), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company.
- Calculated Fair Value: $103.78
- Recent Price: $42.68
- Yield: 8.2%

Illinois Tool Works Inc. (ITW) is a diversified manufacturer that operates a portfolio of 60 business units that serve industrial and consumer markets globally.
- Calculated Fair Value: $369.18
- Recent Price: $176.12
- Yield: 2.5%

AT&T Inc. (T) provides telephone and broadband service and holds full ownership of AT&T Mobility.
- Calculated Fair Value: $47.30
- Recent Price: $29.89
- Yield: 6.9%

Lowe's Companies, Inc. (LOW) sells retail building materials and supplies, lumber, hardware and appliances through more than 1,850 stores in the U.S. and Canada.
- Calculated Fair Value: $202.42
- Recent Price: $140.21
- Yield: 1.6%

The beauty of an income focused long-term, buy-and-hold strategy is the future declines are not necessarily a bad thing. This allows you to buy more shares at a lower price which in turn will provide you with a higher yield. There isn't going to be a giant neon sign in the sky that tells you, "The market has now reached its top or bottom."

Needless to say, we need to consider a lot more than just valuation when making a stock purchase. As  investors in dividend growth stocks, I would argue that dividend fundamentals are more important than valuation. As long-term buy and hold investors, we can over-come paying too much for a great stock with time. However, time is unlikely to help a fairly valued stock with poor dividend fundamentals.

Full Disclosure: Long ABBV, XOM, ITW, T,

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