ICE - Undervalued Dividend Stocks Watchlist - May 8th Update

2023-05-10 12:11:19 ET

Summary

• We have not removed or added any companies to the list since the last update mid-April.
• We have seen Telecom REITs and oil names become more attractively priced in the last 2-4 weeks.
• Insurance company AIZ saw its share price reach multi-month highs not seen since the beginning of March.
• SU is looking attractive with the large oil sand acquisition announcement and word from the new CEO.
• TSN is now looking even more attractive after recent results caused the share price to plummet to 52-week-lows.

The Watchlist consists of companies that we think look interesting for one reason or another. In most cases, I have a modest familiarity with the company including having read recent quarterly earnings releases and reviewed various investor presentations and annual reports.

We haven’t made any changes to the companies on the watchlist, however, there have been a handful of developments that have made the companies on our list more or less attractive during the last 30 days.

Removing East West Bancorp and Helmerich & Payne

I think it is worth noting that there are a few names that will likely get replaced when we find other companies of interest to take their place. The companies on the list that are most likely to be removed include East West Bancorp ( EWBC ) and Helmerich & Payne ( HP )

East West Bancorp

I am still bullish on EWBC and our retirees John and Jane will continue to hold existing shares and potentially add to the current position. The company is doing everything it can to navigate the challenges faced by the financial sector. Still, there seems to be limited upside even at the current price because of the toxic environment created by recent bank failures. The most recent earnings call transcript demonstrates the quality of EWBC’s portfolio/holdings and unlike many institutions out there they come with a loan/deposit ratio under 90%.

In other words, EWBC is a great investment to keep on your radar but the ability to find value right now is not tied to the actual performance of the company. EWBC may find its way back onto the list in the near future once we see liquidity stabilize in the financial sector.

Helmerich & Payne

HP’s Q2-2023 was solid coming in at EPS of $1.55/share compared with $.91/share in Q1-2023. Unfortunately, the better-than-expected results for Q2 were overshadowed by “contractual churn, a softer natural gas market", and "prioritizing of disciplined pricing in the face of wavering industry utilization." All of this implies that Q2’s results are the peak and that Q3 and Q4 are likely to see results that are much less impressive.

It's not that HP isn’t attractively priced compared to historical data but there aren’t any catalysts that would result in any meaningful improvement to the current stock price in the short/medium term. In many ways, HP and EWBC are both experiencing similar problems where the short/medium-term potential just isn't there to warrant keeping these companies on the Watchlist.

Other Watchlist Developments

The majority of companies reported earnings between the last two weeks of April and the first week of May. I am not going to discuss every company on the list in detail but will summarize what I believe are the most pertinent updates for investors to be aware of.

Assurant - Top Performing Stock

Assurant ( AIZ ) is up after a strong Q1-2023 performance with earnings beating analyst estimates. The stock still appears attractively priced but the room to run isn't as attractive as before. One reason for AIZ being on the list is that insurance companies going into a recession typically perform reasonably well when it comes to earnings so the potential upside in price and the additional safety of the industry is something that is worth considering at this point in time.

Suncor - A Pullback Makes It The Time To Buy

We are going to pull the trigger on adding Suncor ( SU ) with the price having reverted back to $30/share which has happened several times over the last rolling year. SU's new CEO has promised to make improvements that reduce unnecessary work so that they are focused on work that adds value. SU recently announced that it would be purchasing oil sands assets from TotalEnergies (TTE) in a $4.1 billion deal that further expands its footprint.

With SU being a Canadian company we will be purchasing shares in John or Jane's Retirement Accounts.

Tyson - Ugly Guidance Improves Potential Upside

We just added Tyson ( TSN ) to the list on our last update and the most recent earnings report caused the share price to tumble with sales expectations revised lower and continued challenges especially when it comes to beef production. To compensate for this TSN also announced it would trim capital expenditure forecasts as it focuses on cost-savings measures.

For comparison sake, adjusted earnings were -$.04/share for the quarter which is astonishing when we consider earnings one year earlier came in at $2.28/share for the same time quarter.

One reason that we are likely to pull the trigger on TSN is that the company has brands with consumer pricing power. Among its Tyson, Jimmy Dean, Hillshire Farms, and Ball Park brands these segments saw sales dollars up 13% and volume growth up 7% compared to a year ago. 2022 results for the same quarter were very strong.

In Q1 & Q2 the company has continued to repurchase shares and the current price makes the opportunity even better. 5.1 million shares were repurchased at a cost of $332 million or about $65/share. Share count has steadily declined in recent years and is at a 10-year low.

TSN has a lot of opportunity to drive efficiency when it comes to the implementation of automation and that is something that will allow for improved profitability. Even though there was a steep drop in profitability the share price is at the low end relative to previous quarters of similar gross profit.

Watchlist

All tables below are compiled using Seeking Alpha information under the business name Consistent Dividend Investor ((CDI)).

The last image is slightly different because it includes two separate time frames to look back at. The first image shows how much the price has moved since two updates ago while the second image shows how much the price has moved since the most recent update.

Open Trades

Watchlist stocks aren't the only stocks that interest me but it's the only list I have that track stocks John and Jane don't currently have in their portfolio. We use limit trades on a regular basis and the purpose of these trades is dependent on market conditions and potential opportunities. I think it is worth noting that many of these trades never materialize because they expire or I cancel them.

Purchases - If I have a very specific price point for a stock I will set a purchase limit trade and most of these will have execution orders that last for up to six months.

Sales - If you read the monthly updates for John and Jane you will notice occasional limit trades where we have chosen a desired price point to sell shares at. This is especially useful when we are trimming back a high-cost portion of a position to lower John and Jane's exposure. These also have the same (up to) six-month expiration.

Here are some of the more notable limit trades we have in play. Let me know in the comment section if there are any questions about these trades.

Conclusion

Watchlist items will always be focused on individual stocks but I did want to note that we have recently trimmed back some holdings and most of that cash will either be held in Schwab Value Advantage Money Fund ( SWVXX ) or invested in what will likely be iShares 20+ Year Treasury Bond ETF ( TLT ) and iShares Treasury Floating Rate Bond ETF ( TFLO ). I am looking to write an article in the near future on why I chose these bond funds.

Previous Articles

April Watchlist: Adding Tyson Foods To The List And Trade Updates

John and Jane are currently long on the following positions in the watch list: American Tower ( AMT ), Avient ( AVNT ), Crown Castle ( CCI ), Enbridge ( ENB ), EOG Resources ( EOG ), East West Bancorp ( EWBC ), Honeywell ( HON ), Helmerich & Payne ( HP ), Intercontinental Exchange ( ICE ), Nordson ( NDSN ), Sun Communities ( SUI ), T. Rowe Price ( TROW ), WestRock Company ( WRK ).

For further details see: