In this turbulent market, it is becoming increasingly difficult to find the right stocks selling at the right prices.
Some of the best companies, despite the market drop, are still selling way above fair value. Others, while now selling at more reasonable prices, have so much negative momentum behind their positions it seems almost impossible to predict where they are headed.
We like to stray on the side of caution. That is, we like to look for businesses that, while maybe not the best “value bargains,” are competitively and operationally superior and are almost guaranteed to survive an economic fall. This should help make things a bit easier for you as well.
We’ve run multiple screens and found three solid, fairly priced stocks operating in different markets that should offer investors a reasonable rate of return. We suggest taking a quick look at each to determine whether any fit well into your portfolio for 2016.
1. Apple Inc.
Apple Inc. (AAPL, Financial) is one of the world’s leading designers and manufacturers of mobile communication and media devices, personal computers and portable digital music players and sells a variety of related software, services, accessories, networking solutions and third-party digital content and applications. As most people know, it is the company behind the famous iPhone, iPad, Mac, iPod and Apple TV products.
At today’s levels, Apple’s stock trades at just 10.5 times trailing 12-month earnings per share of $6.01 and only 9.2 times fiscal 2016’s estimated earnings per share of $9.74, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 14.3 and the Standard & Poor's 500 average multiple of 19.
With the multiples above, a PEG ratio of 0.9, consensus EPS estimates of $9.74 for 2016, $10.65 for 2017 and $10.89 for 2018, Apple’s stock could consistently command a fair multiple of at least 14. This seems well aligned with its long-term historical price trend and places its shares upward of $160 by the conclusion of fiscal 2018, representing upside of over 60% from current levels.
In addition, the company pays a quarterly dividend of 52 cents per share, or $2.08 per share annually, which gives its stock a 2.1% yield. Investors should also note that it has raised its annual dividend payment for four consecutive years, and this is only expected to continue to grow.
2. Johnson & Johnson
Johnson & Johnson (JNJ, Financial) is one of the world’s largest manufacturers of health care products. This includes consumer, pharmaceutical, medical devices and diagnostics, including baby care, skin care, oral care, wound care and women's health care products as well as nutritional and over-the-counter pharmaceutical products. Some of the company’s most recognizable brands include Aveeno, Clean & Clear, Neutrogena, Lubriderm, Listerine, Reach oral care lines of products, Carefree Pantiliners, Stayfree sanitary protection products, Splenda, Tylenol, Sudafed, Motrin IB and Pepcid AC.
At today’s levels, its stock trades at just 18.7 trailing 12-month earnings per share of $5.23 and only 15.2 times fiscal 2016 estimated earnings per share of $6.52, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 18.6 and its industry average multiple of 16.
With the multiples above, consensus EPS estimates of $6.52 for 2016 and $6.92 for 2017, Johnson & Johnson’s stock could consistently command a fair multiple of at least 18, which would place its shares upward at $116 by the end of fiscal 2017, representing upside of about 17% excluding dividends.
Johnson & Johnson pays a dividend of 75 cents, or $3.00 per share annually, which gives its stock a 3% yield. Investors must also note that it has raised its annual dividend payment for 15 consecutive years.
3. Oracle Corp.
Oracle Corp. (ORCL, Financial) is one of the world’s largest developers, manufacturers, marketers, hosts and support providers of database and middleware software, application software, Cloud infrastructure and hardware systems including computer server, storage and networking products and related services that are engineered to work together in Cloud-based and on-premise information technology environments.
At today’s price, its stock trades at just 15.9 times trailing 12-month earnings per share of $2.09 and only 11.8 times fiscal 2016’s estimated earnings per share of $2.66, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 17 and its industry average multiple of 27.4.
With the multiples above, consensus EPS estimates of $2.66 for 2016, $2.89 for 2017 and $3.13 for 2018, Oracle’s stock could consistently command a fair multiple of about 18, which would place its shares upward of $55.80 by the conclusion of fiscal 2018, representing upside of over 58% from current levels.
In addition, the company pays a quarterly dividend of 15 cents per share, or 60 cents per share annually, which gives its stock a 1.8% yield. Investors should also note that it has raised its annual dividend payment for two consecutive years.
Conclusion
Which of these stocks should be on your 2016 buy list?
Apple, Johnson & Johnson and Oracle are three of the biggest and best companies in their respective industries, and all offer reasonable dividend streams with the potential to grow significantly in the future. All investors should take a closer look at these companies and consider buying their shares either at today’s prices or following a further market dip.
