Are you a momentum chaser or a value stalker? Whichever you are, getting out of your comfort zone might improve your returns.
Maybe you’re all about the yield, all you own are REITS and MLPs, utilities and defensive staples and you wouldn’t touch Amazon.com, Inc. (NASDAQ:AMZN) with a ten foot pole. Hear me out…a speck of speculation, a small position won’t hurt you very much.
Maybe you are more flashy, with all your battleground, momentum stocks with the dazzlingly high P/Es and their high short interests. Your mantra is a turn on Spider Man, “With great risk comes great reward.” You just haven’t had a stock turn vicious on you…yet. You need something boring and you need it bad! You need something with yield to comfort you when all your sky high EV/EBITDA stocks desert you.
Have I got some stocks for you!
Kick off your shoes, put on a Hawaiian shirt, maybe play a ukelele like Warren Buffett and consider a small cap speculative name like teen retailer rue21, inc. (NASDAQ:RUE). It’s a competitive space but has been holding its own as a specialty retailer with 934 stores in 47 states. Analysts see 13% EPS growth over the next year.
The company has no debt and has a large insider hold of 35% with CEO Robert Fisch holding 933,497 shares.
Since mid-May the stock has soared from $30 to its 52 week high of $42.49 and the short interest has decreased by 42%. It isn’t quite the bargain it was but it performs better than rival Aeropostale Inc (NYSE:ARO). The trailing P/E has been extended to 24.03 and the PEG has risen from .90 to 1.42 but those numbers are better than Aeropostale Inc (NYSE:ARO)’s P/E at 99.72 and 3.72 PEG.
It is fairly valued at a 1.00 PEG and the forward P/E is 20.55. Again, this company has no debt. Its market cap is $524 million and its price/book is 2.52.
Despite larger competition with Intuit Inc. (NASDAQ:INTU) and Paychex, Inc. (NASDAQ:PAYX) its internet marketing solutions are the cheapest and even the smallest of businesses find it affordable.
The stock is 20% off its highs and is a bargain here with analysts seeing 25% five year EPS growth. Fidelity OTC portfolio owns a 9.50% stake as of the end of May.
Note, however, the short interest has been increasing since May and its profit margin for a low overhead internet name should be higher than 4.63%. That’s why it’s still speculative. Don’t be afraid of tech- Buffett himself has some tech in his portfolio, some Verisign, Inc. (NASDAQ:VRSN) which he holds at a .45% stake in the portfolio.
Get chummy with Dividend Aristocrats
If you’re a high flier type get chummy with a Dividend Aristocrat. These are companies that have consistently raised their dividend for 25 years or more. To be an S&P Dividend Aristocrat also requires a minimum of a $3 billion market cap. Some names to consider are: Chevron Corporation (NYSE:CVX), Pentair Ltd, Walgreen Company (NYSE:WAG) , and Illinois Tool Works Inc. (NYSE:ITW) .
One thing to watch with Dividend Aristocrats, the worst of them will fall off the list like Avon Products, Inc. (NYSE:AVP), whose numbers have been declining for years. And don’t be seduced by the 5.20% yield at Pitney Bowes Inc. (NYSE:PBI), challenged as the US Postal Service winds down service and the need for their products.
Illinois Tool Works Inc. (NYSE:ITW) Works has consistently raised its dividend for 48 years. As its name implies it sells industrial supplies and equipment and is headquartered in Illinois Tool Works Inc. (NYSE:ITW).
The century old global company also sells industrial software and specialty chemicals and operates in six segments: Transportation, Power Systems & Electronics, Industrial Packaging, Food Equipment, Construction Products, and Polymers & Fluids. It has been restructuring from 800 divisions down to a planned 150 by selling off and merging divisions to run cleaner and meaner.
The company has a low corporate governance risk score of 3. The stock trades at a trailing 12.09 P/E and offers a 2.20% yield at a payout ratio of 26%. The stock is trading at 52 week high, up over 38% in the last year. Operating margin is 16.02% and return on equity stands at 24.40%. The company raised the dividend 6% last year and has been buying back shares.
This is a boring name that is slow-growing with only 7.45% five year EPS growth expected but analysts are slightly bullish with 11 Holds, 5 Strong Buys, 4 Buys, and 1 Underperform.
The company grows business through acquisitions, recently entering the Chinese hospitality industry buying Vesta for an undisclosed sum. Vesta makes restaurant equipment in China and its biggest clients are upscale hotels and chain eateries.
A favorite name is Walgreen Company (NYSE:WAG) which raised its yield for 37 years straight. It is the largest US drugstore chain with 8,077 stores. It trades at a trailing P/E of 20.32 with a 2.50% yield and a PEG of 1.08 despite its run of 51.50% this last year. The forward P/E is 13.12 and price/book is 2.26.
The turnaround story is compelling with Walgreen’s new chronic illness maintenance initiative, EV charging stations, and the flagship shopping experience. Walgreen Company (NYSE:WAG) has global ambitions with its strategic partnership with Alliance Boots to create a global health and wellness powerhouse. Just in March the two partnered with Amerisource Bergen, the pharmaceutical services company.
The company reinstated its share buyback of $2 billion worth of shares. Its lingering dispute with Express Scripts Holding Company (NASDAQ:ESRX) is in the rear view mirror and analysts see 12.98% EPS five year growth.
Going against the grain
It may feel unnatural to your investing style so start with a tiny position. With an industrial and a health retailer as Dividend Aristocrats to choose from you should be able to fit one in a go-go portfolio.
For value investors I like rue21, inc. (NASDAQ:RUE) on a pullback as you likely don’t have a teen retailer. Constant Contact Inc (NASDAQ:CTCT) is already off its highs if you think a small business tech could have some mojo.
Either way, switching it up a little couldn’t hurt your portfolio.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Illinois Tool Works. AnnaLisa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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