Tuesday, April 22, 2014

Don't Buy These Excellent Companies

I don't read too many articles telling us the stocks we should avoid, so here it is.  I created a watch list of great dividend stocks back in 2012, and have been adding to it since.  There are some GREAT companies on this list that I'd love to own, but they are TOO expensive.  Buying stocks when they are undervalued works - so the converse of this must also work.  Sell these stocks when they are grossly overvalued, or short them, but for heavens sake, don't buy them!  My entire watch list is overpriced, some more than others.  For your information, here is my current watch list:


Symbol Name
MMM 3M COMPANY
ADP AUTOMATIC DATA PROCCESSING INC
BLL BALL CORP
BDX BECTON DICKINSON AND COMPANY
CHD CHURCH AND DWIGHT CO INC
CLX CLOROX CO
CL COLGATE PALMOLIVE CO
COST COSTCO WHOLESALE CORP
CMI CUMMINS INC
D DOMINION RESOURCES INC
GIS GENERAL MILLS INC
HD HOME DEPOT INC
HRL HORMEL FOODS CORPORATION
SJM JM SMUCKER COMPANY
MA MASTERCARD INCORPORATED
MKC MCCORMICK AND CO
MCK MCKESSON CORP
NKE NIKE INC
PEP PEPSICO  INC
PX PRAXAIR INC
PG PROCTER AND GAMBLE CO
ROST ROSS STORES INC
SO SOUTHERN CO
SYK STRYKER CORP
SYY SYSCO CORP
UTX UNITED TECHNOLOGIES CORPORATION
DIS WALT DISNEY CO
WM WASTE MANAGEMENT
YUM YUM BRANDS INC

I've been watching these stocks for a couple of years, waiting.  I have buy prices set for all of them, well below where they trade today.  That said, I wouldn't buy any of these today, and if I owned any of them, I'd definitely trim them down to a 2/3 position in the portfolio.  Here are a couple of examples:

P&G:  This chart shows the PE ratio over the past 15 years.  It's nearing its six year high point today.  Time to sell.


Costco:  The PE today is getting close to 25.  It's only been higher in the past 15 years in 2001.  Sell, sell, sell.


Colgate Palmolive:  The PE now reaching levels not seen since 2001.  Great company, time to sell.


In summary, I can take a pretty dispassionate view of these stocks because I don't own them.  I'm just watching (that sounds weird).  I haven't fallen "in love" with these names like many do after owning them over long periods.  For example, I have a strong affection for Walgreens because its up over 85% since I bought it, but it too is getting into sell territory, and in fact, I've trimmed it back to a full position in the portfolio.

If you own any of the stocks on the watch list above, take a close look at their current valuation, and consider trimming them down.  Use the proceed to buy something cheaper!

Chump



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