No. of Recommendations: 35
Many thanks to Jack Cade for his work on the Mr. Goodbuy stocks.

This post will analyze the stocks in Table 11, which includes the stocks of financially strong companies with low P/E ratios. These stocks all have beta <1, which means their price volatility is lower than the S&P 500.

I have removed stocks with a D stewardship and no dividend.




Tick Name Business
ADP Automatic Data Processing Office svc
BAX Baxter medical devices
BDX Becton, Dickinson medical devices
CL Colgate-Palmolive Consumer
CVX Chevron Texaco Oil
GD General Dynamics Defense
GSK Glaxo Smith Kline Pharma
HPQ Hewlett-Packard Computers
ITW Illinois Tool Works Inc....... Misc. Capital Goods............
JNJ Johnson & Johnson Pharma
KMB Kimberly-Clark Corporation.... Paper & Paper Products.........
LLY Eli Lilly Pharma
LMT Lockheed Martin Defense
MDT Medtronic medical devices
MMM 3M Company.................... Conglomerates..................
MSFT Microsoft Software
NOC Northrop Grumman Defense
PEP Pepisco Consumer
PG Procter & Gamble Company, The. Personal & Household Products..
RTN Raytheon Defense
T AT&T Telecom
UTX United Tech Eng. Syst.
XOM Exxon Mobil Corporation....... Oil & Gas Operations...........



Sorted in order of Morningstar dividend yield.


Tick QPZ Beta M* Div Bear Stew RMS BMW RF M* RF P/E
T 88 0.75 5.8 2 C -0.74 1.3 1.1 12.5
LLY 73 0.8 5.6 5 C -1.68 2.24 1.2 7.9
GSK 69 0.7 5.1 4 B -1.13 1.41 1.19 10.4
KMB 91 0.55 4.2 2 B -1.31 1.5 1.12 12.9
LMT 100 0.8 3.8 2 B -1.16 1.44 1.27 10.2
JNJ 88 0.6 3.4 3 C -1.35 1.75 1.23 12.9
CVX 97 0.9 3.2 2 B -0.19 1.04 1.08 10
RTN 99 0.75 3.2 1 B -0.47 1.15 1.35 9.2
ADP 88 0.75 2.9 2 B -1.08 1.44 1.11 18.5
NOC 98 0.85 2.9 3 B -1.24 1.59 1.01 10.6
PEP 99 0.6 2.9 2 B -1.48 1.72 1.11 15.4
PG 94 0.6 2.9 2 B -1.32 1.55 1.19 16.4
CL 98 0.55 2.5 3 B -2 2.24 1.14 16.6
ITW 89 0.95 2.4 3 B -1.3 1.44 1.15 15.4
MMM 90 0.8 2.4 2 B -1.15 1.37 1.16 14.8
XOM 98 0.75 2.4 1 B -2.47 1.76 1.19 12.1
BAX 95 0.65 2.3 4 B -0.94 1.26 1.31 12.4
GD 99 0.95 2.3 3 A -1.49 2.39 1.11 10.3
MDT 90 0.8 2.3 2 B -2.48 4.27 1.23 10.5
UTX 97 0.95 2.2 2 A -0.91 1.26 1.19 15.7
MSFT 94 0.8 2 4 A -1.08 1.93 1.15 11.4
BDX 97 0.65 1.8 4 B -1.45 1.36 1.15 16.1
HPQ 99 0.95 0.8 2 A -0.79 1.32 1.31 9.7


Due to the recent rise in the market, many of these stock's prices are no longer significantly underpriced. Their RMS and Morningstar return factor are approaching calculated fair value.

Sorting by RMS. A strong negative RMS indicates a stock that is well below its historical CAGR line.


Tick QPZ Beta M* Div Bear Stew RMS BMW RF M* RF P/E
MDT 90 0.8 2.3 2 B -2.48 4.27 1.23 10.5
XOM 98 0.75 2.4 1 B -2.47 1.76 1.19 12.1
CL 98 0.55 2.5 3 B -2 2.24 1.14 16.6
LLY 73 0.8 5.6 5 C -1.68 2.24 1.2 7.9
GD 99 0.95 2.3 3 A -1.49 2.39 1.11 10.3
PEP 99 0.6 2.9 2 B -1.48 1.72 1.11 15.4
BDX 97 0.65 1.8 4 B -1.45 1.36 1.15 16.1
JNJ 88 0.6 3.4 3 C -1.35 1.75 1.23 12.9
PG 94 0.6 2.9 2 B -1.32 1.55 1.19 16.4
KMB 91 0.55 4.2 2 B -1.31 1.5 1.12 12.9
ITW 89 0.95 2.4 3 B -1.3 1.44 1.15 15.4
NOC 98 0.85 2.9 3 B -1.24 1.59 1.01 10.6
LMT 100 0.8 3.8 2 B -1.16 1.44 1.27 10.2
MMM 90 0.8 2.4 2 B -1.15 1.37 1.16 14.8
GSK 69 0.7 5.1 4 B -1.13 1.41 1.19 10.4
ADP 88 0.75 2.9 2 B -1.08 1.44 1.11 18.5
MSFT 94 0.8 2 4 A -1.08 1.93 1.15 11.4
BAX 95 0.65 2.3 4 B -0.94 1.26 1.31 12.4
UTX 97 0.95 2.2 2 A -0.91 1.26 1.19 15.7
HPQ 99 0.95 0.8 2 A -0.79 1.32 1.31 9.7
T 88 0.75 5.8 2 C -0.74 1.3 1.1 12.5
RTN 99 0.75 3.2 1 B -0.47 1.15 1.35 9.2
CVX 97 0.9 3.2 2 B -0.19 1.04 1.08 10


Sorting by M* return value. Morningstar analyzes the entire company and assigns a fair value. This is a forward-looking metric, as opposed to RMS, which is a historical metric. The number is the ratio of the M* fair price to the current price. A higher number is better.


Tick QPZ Beta M* Div Bear Stew RMS BMW RF M* RF P/E
RTN 99 0.75 3.2 1 B -0.47 1.15 1.35 9.2
BAX 95 0.65 2.3 4 B -0.94 1.26 1.31 12.4
HPQ 99 0.95 0.8 2 A -0.79 1.32 1.31 9.7
LMT 100 0.8 3.8 2 B -1.16 1.44 1.27 10.2
MDT 90 0.8 2.3 2 B -2.48 4.27 1.23 10.5
JNJ 88 0.6 3.4 3 C -1.35 1.75 1.23 12.9
LLY 73 0.8 5.6 5 C -1.68 2.24 1.2 7.9
XOM 98 0.75 2.4 1 B -2.47 1.76 1.19 12.1
PG 94 0.6 2.9 2 B -1.32 1.55 1.19 16.4
GSK 69 0.7 5.1 4 B -1.13 1.41 1.19 10.4
UTX 97 0.95 2.2 2 A -0.91 1.26 1.19 15.7
MMM 90 0.8 2.4 2 B -1.15 1.37 1.16 14.8
BDX 97 0.65 1.8 4 B -1.45 1.36 1.15 16.1
ITW 89 0.95 2.4 3 B -1.3 1.44 1.15 15.4
MSFT 94 0.8 2 4 A -1.08 1.93 1.15 11.4
CL 98 0.55 2.5 3 B -2 2.24 1.14 16.6
KMB 91 0.55 4.2 2 B -1.31 1.5 1.12 12.9
GD 99 0.95 2.3 3 A -1.49 2.39 1.11 10.3
PEP 99 0.6 2.9 2 B -1.48 1.72 1.11 15.4
ADP 88 0.75 2.9 2 B -1.08 1.44 1.11 18.5
T 88 0.75 5.8 2 C -0.74 1.3 1.1 12.5
CVX 97 0.9 3.2 2 B -0.19 1.04 1.08 10
NOC 98 0.85 2.9 3 B -1.24 1.59 1.01 10.6


My personal choices...

Others may disagree, but I want to winnow these choices further.
I removed any stocks with dividends < 2%.

I removed any stocks with RMS > -1.1, since they are too close to the historical CAGR line to be underpriced.

I removed any stocks with M* RF < 1.1.

I removed any stocks with P/E ratio over 15.

This stringent winnowing process yields the following stocks.


Tick QPZ Beta M* Div Bear Stew RMS BMW RF M* RF P/E
LLY 73 0.8 5.6 5 C -1.68 2.24 1.2 7.9
GSK 69 0.7 5.1 4 B -1.13 1.41 1.19 10.4
KMB 91 0.55 4.2 2 B -1.31 1.5 1.12 12.9
LMT 100 0.8 3.8 2 B -1.16 1.44 1.27 10.2
JNJ 88 0.6 3.4 3 C -1.35 1.75 1.23 12.9
MMM 90 0.8 2.4 2 B -1.15 1.37 1.16 14.8
XOM 98 0.75 2.4 1 B -2.47 1.76 1.19 12.1
MDT 90 0.8 2.3 2 B -2.48 4.27 1.23 10.5
GD 99 0.95 2.3 3 A -1.49 2.39 1.11 10.3


Here are their charts.

http://stockcharts.com/scripts/php/candleglance.php?LLY,GSK,...

The most conservative choices on this list -- those with the lowest RMS and highest return factors -- are MDT, XOM, JNJ.

If I had to choose one, for quality, stability, safety and the rising price of its commodity, it would be XOM.

Wendy
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If I had to choose one, for quality, stability, safety and the rising price of its commodity, it would be XOM.



It might be worth considering that for those interested in "cheap" oil stocks that oil hit a new two-year high today. The prices of these stocks usually move in lock-step with the price of crude. If you're expecting a healthy outsized investment return on Exxon, for instance, you're also expecting the price of crude to keep climbing.

It's also of note that oil stock's p/e ratios tend to be lower when the price of crude, and earnings, are up. When these stocks seem cheap, on a p/e basis, this cheapness can be illusionary because as earnings decline their p/e ratios usually rise.

kelbon
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No. of Recommendations: 3
It might be worth considering that for those interested in "cheap" oil stocks that ... If you're expecting a healthy outsized investment return on Exxon ...

Kelbon, that's what you said about 22% ago. :)

If you're expecting a healthy outsized investment return on Exxon, for instance, you're also expecting the price of crude to keep climbing.

I believe we've had this discussion too. If I remember correctly, I said oil would never get down to that price again to which you replied "You're nuts!" (unfairly paraphrasing here for humor.) You may be right, oil may fall again but I hope that if it does we will be able to see it coming for at least a little while which is admittedly no sure thing.

But face it, you missed at least 22% gains plus divvies SO FAR. That's okay, you can't win 'em all. :) If you think you have a surer thing than energy for the next decade, seriously, I'd like to hear it. Other than a declining dollar, that is, 'cause, how are we going to play that, other than buying even more oil stocks? Until China crashes, they will add more new drivers than exist in total in the good old U.S. of A. Doesn't sound like a lack of demand any time soon to me. Not only that, but the U.S. will still dominate world economics for awhile IMO, and you know how those pigs (that would be, um, us) like to drive their SUV's.

An aside: Would you believe .... a Corvette with a 6-speed manual gets 29.4 mpg at 75 mph on the interstate? Take that, you Saudi princes of oil and terrorist funding!

Dan, long XOM, CVX, BP, RIG and for electric, AT. Also trade other energy stocks
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Kelbon, that's what you said about 22% ago. :)

Did I? I'll take your word for it. But, 22% ago the S&P 500 was probably down about the same 22%.




But face it, you missed at least 22% gains plus divvies SO FAR. That's okay, you can't win 'em all. :)

Actually I didn't, I'm invested in oil and I'm happily holding a 50% gain on my COP shares.
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But face it, you missed at least 22% gains plus divvies SO FAR. That's okay, you can't win 'em all. :) If you think you have a surer thing than energy for the next decade, seriously, I'd like to hear it. Other than a declining dollar, that is, 'cause, how are we going to play that, other than buying even more oil stocks? Until China crashes, they will add more new drivers than exist in total in the good old U.S. of A. Doesn't sound like a lack of demand any time soon to me. Not only that, but the U.S. will still dominate world economics for awhile IMO, and you know how those pigs (that would be, um, us) like to drive their SUV's.

You can play against the "declining dollar" three ways.

First off, invest in hard currency. Right now though it looks like gold might be dare I say a TAD overvalued. But as the dollar declines in value, gold always rises lock-step with it. However, there's another angle here. Silver and gold typically operate in lockstep with a 30:1 ratio. Right now that ratio is closer to 100:1, indicating that either gold needs to drop or silver needs to increase. Even if gold drops (and I believe it will), silver must necessarily increase even if over the short haul, so my bet is on silver.

Second, as the dollar declines in value, ALL manufactured goods increase in price at least, and that usually means that owning stocks in these goes up. Only CD's and other debt instruments tend to be capital black holes during inflation.

Third, whenever the dollar declines in value, American goods become very "cheap" on the world market, even when the "world market" isn't necessarily buying a whole lot. So anything that is tied closely to exports tends to do very well, especially bulk materials (mining companies other than gold).
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Let me regroup.

When a commodity, in tandem with the broad stock market, hits a two year high perhaps reflecting on this might serve to curb enthusiasm for how cheap, or predicable—in the short term—an investment that is basically a component of both, actually is.

I don't doubt that in the long run the price of oil, and major oil companies' stocks, will be higher. In the short run, at least a modest pull back in the price of oil, and related stocks, isn't too far fetched. After all, the current price of crude reflects increased demand because of severe winter conditions, in Europe especially, and a supply squeeze as a consequence. Just as surely as spring follows winter, this particular upward pressure on the price of oil will melt away.

Likewise, a modest pullback in the current rapid ascent of the market isn't too unlikely either. The price of stocks, and commodities, don't generally rise in a straight line. Usually, when the stock market has been on a tear for four months, there's better buying opportunities ahead. Unfortunately, the stock market, and sentiment, are not as predictable as the sequence of the seasons.

Of course, If I'd said the same about the price of gold a year ago I'd have been wrong. But, perhaps the rapid and relentless rise in gold prices is the exception, not the rule?

kelbon
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Considering the huge leverage available in the commodity markets, anyone who can consistently predict short term oil prices would soon be richer than Bill Gates. Those who presumably have the most information, big oil companies, seldom get it right (at least in their public statements). Seasonal demand and cold weather are things everybody knows and are likely built into the price. Even if you could forecast supply and demand of the physical oil, there are lots of speculators influencing the price. Then there are the Saudi's ,who knows what they consider the "right" price for oil, and they have a huge influence on the market.
FWIW, I think few participants in physical oil have much to gain with prices over $100 per bbl. There is a very rough inflection point where higher prices are self defeating because they induce recessions and result in declining demand. This may be especially true at this point in time when the consuming countries (excluding China????) are in fragile economic condition. Is oil influenced by the same factors as commodities in general? Yes but there are unique factors too.

So I see no "edge" for individual investors in the short run. The long run may be different. Peak Oil (not always defined the same by different people) will play out, but markets generally don't look that far ahead.
If I could chose my perfect investment for years ahead it might be an easily drillable big pool of oil in the ground that nobody else knows about, located in an oil friendly place in the US . I can't get that but there are a few oil companies that are a second best choice. None of them are majors.
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Just as surely as spring follows winter, this particular upward pressure on the price of oil will melt away.

Of course summer driving season follows spring. :<)

Just saying,

B
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While most look to oil or gold, another area to take a peek at is typified by companies such as BHP (I prefer the BBL flavor), RIO and VALE. They dig holes in the ground and sell the stuff they remove. Long term (with a significant dip in late 2008/2009) these guys have done fine.

Jeff
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