During the past half century, the financial media has tried to
stay abreast of ever-changing investor interest. In the 1950s and
1960s, that meant a deep emphasis on value investing, as investors
searched for stocks that looked like great bargains in relation to
theirbalance sheet strength. In the 1970s, the focus shifted to
stocks with high-dividend yields in a bid to stay ahead of
risinginflation . In the 1980s, 1990s and the aughts, growth
investing was the name of the game, though more recently,
dividend-paying stocks have shown renewed popularity.
What's next? Perhaps it's wisest to focus on stocks that have
all of these characteristics. So I went in search of stocks that do
- Trade belowbook value
- Have a tradition of rising dividends
- Are expected to boost sales and profits in 2013.
While dozens of stocks meet these criteria, only a few stand out
as especially solid values. Here they are...
1. Bunge (NYSE:
This stock trades at 89% of book value, has boosted itsdividend
every year for the past decade (an average 10% hike), and is
expected to boost sales and profits at least 6% in 2012 and again
in 2013.Shares currently trade for around nine times next year's
I profiled this stock back in July
as a possible beneficiary of our nation's current drought and I
noted that analysts at Citigroup expected Bunge to subsequently
report a better-than-expected set of second-quarter profits. The
stock actually missed the consensus forecast, but has managed to
rise anyway in anticipation of an improving 2013 outlook, when
analysts expect earnings-per-share (EPS ) to rise by 15% to $5.66.
Analysts at Citigroup seeearnings topping $8 per share by 2014, and
the stock continuing its upward move toward their $95price target ,
which is 38% above current levels.
2.Principal Financial Group (NYSE:
This financial services stock, which trades for 89% of book value
and eight times projected 2013 profits, is on track for its fifth
straight year of rising dividends as it checks off another box:
Stock buybacks. The company has already bought back $500 million in
stock this year with plans to push that figure to $800 million.
Buybacks are a sure-fire way of enabling per-share profits to
rise faster than sales. Principal is expected to boost revenue
around 6% in 2013 to $9.2 billion, though earnings are expected to
rise a more robust 18% to $3.34 per share, according to consensus
The buybacks are likely to shrink the share count around 8%, and
coupled with the current 3%dividend yield , means the company's
return to shareholders equates to 11%. As a general rule of thumb,
firms like Principal Financial should look to place greater
emphasis on buybacks while shares trade below book value, and a
greater emphasis on dividends when shares trade above book value,
as "below book" buybacks can magnify the earnings per share gains
3. Cliffs Natural Resource (NYSE:
Late this past week
, my colleague Alan Knuckman took note of an intriguing technical
set-up for this iron ore producer and, like clockwork, this stock
has made a nice upward move ever since.
Yet this stock also shows solid fundamental support as it trades
at 93% of book value at around seven times projected 2013 profits.
The key factor behind its recent gains is a better-than-expected
report of iron-ore pricing on thespot market . Indeed, you always
want to catchcommodity stocks when underlying pricing is
strengthening, not weakening.
Cliffs had to cut its dividend -- from 35 cents a share in 2008
to 26 cents a share in 2009 -- as industry conditions slumped. The
dividend is now getting a lot more attention.
Recent hikes have pushed the payout above $2 a share, which
equates to acurrent yield of roughly 6.5%.
Risks to Consider:
If theeconomy slips intorecession in 2013, then these stocks
may be hard-pressed to keep hiking dividends.
Action to Take -->
These aren't the sexiest stocks on themarket , but they all
sport characteristics that any investor should love: growth
momentum, solid dividends and dirt-cheap valuations. Any one of
these is worth considering for your portfolio.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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