RMR - 52 Ideal May Value Buys From Ben Graham

2023-05-16 20:49:21 ET

Summary

• “Value ranking, looks at the price of a stock relative to intrinsic firm value. Graham Value Stocks match the criteria. Benjamin Graham followed. “—YCharts Value Screener.
• 66 May Value large caps and Graham formula-derived results reflect established value-stock detection-criteria. Of those, 52 met the dogcatcher-ideal of dividends from $1K invested, exceeding single-share-stock-prices.
• Representing eight-of-eleven Morningstar Sectors, all 52 pay regular-dividends. Broker-target-top-ten All-Star-Value dividend-paying net-gains ranged 45.89%-98.22%, topped by PBR & PDM, as-of 5/12/23.
• By yield, PBR leads the top-ten All-Star-Value field of CIB, ORCC, F, CALM, PXD, BGFV, PDM, LPG, TRMD, & PBR. The ten averaged 17.32% yield. All-Star-Value top-ten, by broker-target-price upsides, were PPBI, HT, USB, TFC, HVT, NTB, SBSW, BOH, RMR, & PDM, averaging 60.72%.
• $5k invested May 12 in the five top-yield, lowest-priced, All-Star Value stocks projected 25.39% more net-gain than from $5k invested all top ten. Little (lower-priced) equities returned to lead the top-ten May All-Star Value-derived dividend dogs by over two and one-half lengths, per analyst estimates.

Foreword

About Large Cap Value

A value ranking for large cap stocks from YCharts puts together complementary strategies found during their stock research. As a value ranking, it looks at the price of a stock relative to a number of measurements that determine intrinsic firm value. Only the largest 10% of companies based on market cap are allowed in this portfolio.

What it is: The Value Score is a composite score. It tells you how much you are getting in terms of profits, cash flows, assets, sales, etc. for the stock price that you pay. It is a relative measurement, so it says nothing about the overall level of the market. Rather, it answers the question: "Given the current market level, which stocks give you the most current value for your dollar of investment?" Tens are the most value, and 1s are the least.

How to use it: Use it to find companies that are selling at a low price relative to their assets and profits.

Limitations of the Value Score: Watch out for companies with a lot of uncertainty or bad prospects for the future (e.g., Pharma companies with expiring patents, industries on the decline, etc.).

About the Ben Graham Formula

The Ben Graham Formula strategy contains ultra-stable stocks that will infrequently lose money if held over a long period of time. It was developed based on a screen in Graham's book, "The Intelligent Investor." For those who have the book, it is the "Defensive Investor" screen. It selects stocks that are large in terms of sales and total assets, have a strong track record of earnings and dividend payments, have a reasonable current ratio and level of long-term debt, and have a low valuation given by PE Ratios and Price to Book Value ratios.

-YCharts

While 14 out of this collection of 66 All-Star-Value Dividend stocks are too pricey to justify their skinny dividends, the remaining 52 of them, by yield, live up to the ideal of offering annual dividends (from a $1K investment) exceeding their price per share.

This list of May All-Star-Value stocks discarded one stock showing an outlandish yield number, namely ZIM.

52 Ideal Value Dogs for May

In the current market swing, the dividends from $1k investments in 52 of the 66 stocks listed above, met or exceeded their single share prices as of 5/12/23.

As we are now nearing a quarter past the third anniversary of the 2020 Ides of March dip, the time to snap up some of the 52 top-yield All-Star-Value dogs is now... unless another big bearish drop in price looms ahead. (At which time, your strategy would be to add to your position in any of these you then hold).

Actionable Conclusions (1-10): Analysts Estimate 45.89% To 98.22% Top Ten All-Star-Value Net Gains To May 2024

Two of the ten top picks by yield were verified as also being among the top ten gainers for the coming year based on analyst 1-year target prices. (They are tinted gray in the chart below). Thus, this yield-based forecast for All-Star-Value derived dividend dogs (as graded by Brokers) was 20% accurate.

Estimated dividend returns from $1000 invested in each of the highest-yielding stocks and their aggregate one-year analyst median target prices, as reported by YCharts, created these 2023-24 data points. (Note: target prices by lone analysts were not used.) Ten probable profit-generating trades projected to May 12, 2024, were:

Piedmont Office Realty Trust ( PDM ) was projected to net $982.16, based on the median of target price estimates from 3 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 7% less than the market as a whole.

Petroleo Brasileiro SA Petrobras ( PBR ) was projected to net $755.40, based on a median of target estimates from 16 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 37% greater than the market as a whole.

Bank of Hawaii Corp ( BOH ) was projected to net $727.15, based on the median of target price estimates from 6 analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 3% less than the market as a whole.

Bank of N.T. Butterfield & Son Ltd ( NTB ) netted $669.81 based on a median target price estimate from 4 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 38% greater than the market as a whole.

The RMR Group Inc ( RMR ) was projected to net $650.37, based on dividends, plus the median of target price estimates from 2 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 49% greater than the market as a whole.

Truist Financial Corp ( TFC ) was projected to net $619.31, based on dividends, plus the median of target price estimates from 22 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 5% greater than the market as a whole.

Pacific Premier Bancorp Inc ( PPBI ) was projected to net $539.48, based on dividends, plus the median of target price estimates from 7 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 21% greater than the market as a whole.

First Interstate BancSystem ( FIBK ) was projected to net $495.03, based on dividends, plus the median of target price estimates from 7 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 16% under the market as a whole.

Energy Transfer LP ( ET ) was projected to net $477.79, based on a median target price estimates from 16 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 74% over the market as a whole.

Devon Energy Corp ( DVN ) was projected to net $458.85 based on dividends, plus the median of target price estimates from 27 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 134% more than the market as a whole.

The average net gain in dividend and price was estimated to be 63.75% on $10k invested as $1k in each of these ten stocks. The average Beta showed these estimates subject to risk/volatility 33% greater than the market as a whole.

The Dividend Dogs Rule

Stocks earned the "dog" moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs." More precisely, these are, in fact, best called, "underdogs".

Top 50 All-Star-Value Picks By Broker 1Yr Price Targets

This scale of broker-estimated upside (or downside) for stock prices provides a scale of market popularity. Note: no broker coverage or 1 broker coverage produced a zero score on the above scale. This scale can be taken as an emotional component as opposed to the strictly monetary and objective dividend/price yield-driven report below. As noted above, these scores may also be taken as contrarian.

Top 50 All-Star-Value Picks By Annual Dividend Yield

Actionable Conclusions (11-20): Ten Top Stocks By Yield Are The May Dogs of The All-Star-Value Pack

Top ten All-Star-Value stocks selected 5/12/23 by yield represented five of eleven Morningstar sectors. First place was secured by the first of four energy sector representatives, Petrol Brasileiro SA Petrobras [1], TORM PLC ( TRMD ) [2], followed by Dorian LPG Ltd ( LPG ) [3]. Another placed sixth, Pioneer Natural Resources Co ( PXD ) [6].

The lone real estate member placed fourth, Piedmont Office Realty Trust, Inc. [4]. Then, the first of two consumer cyclical representatives placed fifth, Big 5 Sporting Goods Corp ( BGFV ) [5], and the other placed eighth, Ford Motor Co ( F ) [8].

Not to be outdone, the lone consumer defensive representative placed seventh, Cal-Maine Foods, Inc. ( CALM ) [7].

Finally, two financial services representatives placed ninth, and tenth, Owl Rock Capital Corp ( ORCC ) [9], and Bancolombia S.A. ( CIB ) [10], to complete this All-Star-Value top ten, by yield, for May.

Actionable Conclusions: (21-30) Ten All-Star-Value Dividend Stocks Showed 33.4% To 86.01% Upsides To May, 2024, With (31) No Losers

To quantify top-yield rankings, analyst median-price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high-yield metrics, analyst median price target estimates became another tool to dig out bargains.

Analysts Estimated A 25.39% Advantage For 5 Highest Yield, Lowest Priced of Top-Ten All-Star-Value Dogs To May 2024

Ten top All-Star-Value stocks were culled by yield for this monthly update. Those (dividend/price) results provided by YCharts did the ranking.

As noted above, top-ten All-Star-Value Dogs selected 5/12/23, showing the highest dividend yields, represented five of eleven sectors in the Morningstar scheme.

Actionable Conclusions: Analysts Estimated The 5 Lowest-Priced Of Ten Highest-Yield All-Star-Value Dividend Stocks (33) Delivering 47.8% Vs. (34) 38.12% Net Gains by All Ten by May 2024

$5,000 invested as $1k in each of the five lowest-priced stocks in the top ten All-Star-Value dividend pack, by yield, were predicted by analyst 1-year targets to deliver 25.39% more gain than $5,000 invested as $.5k in all ten. The very lowest-priced All-Star-Value top-yield stock, Piedmont Realty Trust Inc, was projected to deliver the best net gain of 98.22%.

The five lowest-priced top-yield All-Star-Value dividend stocks for May 12 were: Piedmont Office Realty Trust Inc; Big 5 Sporting Goods Corp; Ford Motor Co; Petroleo Brasileiro SA Petrobras; Owl Rock Capital Corp, with prices ranging from $6.36 to $12.82

The five higher-priced top-yield All-Star-Value dividend stocks for May 12 were: Dorian LPG Ltd; Bancolombia S.A.; TORM PLC; Cal-Maine Foods Inc; Pioneer Natural Resources Co, whose prices ranged from $21.79 to $204.78.

This distinction between five low-priced dividend dogs and the general field of ten reflected Michael B. O'Higgins' "basic method" for beating the Dow. The scale of projected gains based on analyst targets added a unique element of "market sentiment" gauging upside potential. It provided a here-and-now equivalent of waiting a year to find out what might happen in the market. Caution is advised, since analysts are historically only 15% to 85% accurate on the direction of change and just 0% to 15% accurate on the degree of change.

Afterword

If somehow you missed the suggestion of the fifty-two stocks ripe for picking at the start of the article, here is a repeat of the list at the end:

In the current market bounce, dividends from $1K invested in the fifty-two stocks listed above met or exceeded their single share prices as of 5/12/23.

As we are nearing one-quarter past three years since the 2020 Ides of March dip, the time to snap up some top-yield All-Star-Value dogs is now... unless another big bearish drop in price looms ahead. (At which time your strategy would be to add to your holdings).

Recent Vs. Break-Even Top Ten All-Star-Value Stock Prices

Since nine of the top-ten All-Star-Value Dividend shares are now priced less than the annual dividends paid out from a $1K investment, the following top chart shows the dollar and percent variants to all ten top dogs conforming to (but not exceeding) the dogcatcher ideal.

Those at recent prices are the subject of the middle chart with the break-even pricing of all ten is delivered in the bottom chart.

You could look at the top chart as an indicator of how high each stock might rise or fall in the coming year or two. However, it also shows how much the price must rise or fall (in either dollars or percentage) before it exactly conforms to the standard of dividends from $1K invested equaling the current single share price.

Net gain/loss estimates above did not factor in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

The stocks listed above were suggested only as possible reference points for your All-Star-Value Dividend dog stock purchase or sale research process. These were not recommendations.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.indexarb.com; YCharts.com; finance.yahoo.com; analyst mean target price by YCharts. Dog silhouette: O pen source dog art from dividenddogcatcher.com.

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