Tag Archives: NYSE:IBM

1 Investing Mistake You Want To Avoid And 5 Lessons Learned

There are so many investing mistakes an investor can make. So, it’s helpful to see the mistakes others have made and learn a lesson or a few. 

One investing mistake I’ve made time and time again was booking profits on solid stocks. Some investors believe it’s not wrong as long as you make money. I agree there’s some truth in that but not the whole truth. (I’ll elaborate at the end of the article.)

There was a number of reasons why I booked profits, and I’ll illustrate with the examples below why I was wrong. 

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The Stock Got Too Expensive?!

I sold out of Royal Bank of Canada (TSX:RY)(NYSE:RY) in August 2016. At the time, I thought the top Canadian bank was close to fully valued and I expected to be able to buy the stock back at a lower price.

From my selling point, the stock went on to deliver total returns of about 12%. What’s more? Fast forward three years, RY stock looks fairly valued to me right now trading at about 11.6 times earnings at about CAD$102 per share. 

Lesson Learned: In your lifetime of holding quality stocks, for sure there must be times in which they become undervalued, fairly valued, or overvalued. If your goal is to build a solid portfolio and use stocks, such as Royal Bank, as stable foundation stocks, you should aim to buy when they’re fairly to undervalued and hold for a long time. 

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Warren Buffett’s Top Dividend Stocks Priced at a Value

Are you looking for top dividend stocks for your portfolio? Why not look at what the Oracle of Omaha holds and see which ones are priced at a value? Well, I’ve done the work for you already. They include American Express Company (NYSE:AXP) and International Business Machines Corp. (NYSE:IBM). I will outline why they’re good values for a dividend portfolio today.

Here are Warren Buffett’s top dividend stocks that are priced at a value, when I cross-referenced with a couple fundamental analysis sources.

Is American Express Company Your Dividend Stock?

American Express Company is Berkshire Hathaway’s fifth largest holding worth over $11.6 billion that equates to 15% ownership in the company.

Business Overview

American Express is a global services company. Its main products include charge and credit cards, and travel services that are enjoyed by consumers and businesses around the world. As of March 1, 2015, American Express brought in annual revenue of $34.3 billion and net income of $5.9 billion.

Valuation

At $77 per share, American Express is priced roughly at a multiple of 12.6 with estimated earnings growth of 13%. Using a multiple of 15, American Express shares would be worth roughly $94. This implies American Express is priced at a discount of 18%. This margin of safety is more conservative than Morningstar’s fair value estimation of $95.

American Express Company fundamental analysis graph Read More

Berkshire Hathaway’s Most Undervalued Dividend Stalwarts

Both Procter & Gamble and International Business Machines are experiencing multi-year transformations. It is exactly for that reason that both are trading at historically high yields, and patient investors can start dollar-cost averaging into these dividend stalwarts with at least 20 years of dividend growth history.

Introduction

On reviewing Berkshire Hathaway’s top 15 holdings listed in its 2014 letter to shareholders, I found out the two most undervalued companies are actually a couple of my core holdings. They are Procter & Gamble Co (NYSE:PG) and International Business Machines Corp (NYSE:IBM). They are cheap for a reason though. Both are experiencing multi-year transformations.

Procter & Gamble’s Transformation

Transformation is a slow process. Especially for a huge company such as P&G, it could take several years to unfold. Procter & Gamble intends to shed off roughly 100 non-core brands, over half of its existing brand portfolio, in an attempt to focus on its core brands, such as the 23 brands that generate over $1 billion in annual revenue.

For example, in July 2015, Procter & Gamble accepted an offer of $12.5 billion from Coty to merge 43 P&G products with Coty. This transaction is tax-efficient in nature, and P&G estimates the one-time gain to be from $5 to $7 billion depending on the final deal value when it closes.

Due to this transaction and the Duracell sale to Warren Buffett for around $4.7 billion, Procter & Gamble intends to return $70 billion to shareholders from fiscal year 2016 to 2019 in dividends and share retirement, while maintaining its current credit ratings.

You can learn more about the Coty transaction.

Procter & Gamble’s Valuation

In today’s market, it’s rare to find Morningstar rating a company 5 stars indicating extreme undervaluation. Well, Procter & Gamble gained that status.

Cross-checking with F.A.S.T. Graphs, Procter & Gamble is also undervalued based on the price-to-cash-flow ratio. The graph indicates the shares are at least 7% undervalued.

PG valuation graph

Procter & Gamble: A Dividend Stalwart of 59 Years

Around $70 per share, its yield of 3.77% is historically high for the company. The chart below shows the fiscal year-end yields, and the highest yield shown is 3.5%. Read More