Newspaper article Sarasota Herald Tribune

Rudd's List of 12 for Your Consideration

Newspaper article Sarasota Herald Tribune

Rudd's List of 12 for Your Consideration

Article excerpt


It is time for my list of 12. But before I give you this year's list, let's quickly review the performance of those from last year and why I feel that several of the underperformers still deserve attention.

In the past, I calculated the percentage price change for each stock and averaged them. This year I had Morningstar assume $100,000 was invested in each company and let their software do the calculations, with dividends reinvested.

Six of the 12 did well, with returns ranging from 21.72 percent in the case of 3M (MMM), to 4.79 percent for Sherwin-Williams (SHW). The other four were Hasbro (HAS), Apple (AAPL), Pepsi (PEP) and Church & Dwight (CHD).

The two worst performers were Teva Pharmaceutical (TEVA), down 43 percent, and Gilead (GILD), down 28 percent, which of course ruined the performance for the group, creating a negligible overall return. The other four were Clorox (CLX), Starbucks (SBUX), Amgen (AMGN) and Kimberly-Clark (KMB).

Now before you suggest I consider another career, let's look a little deeper. The intrinsic value of those six poor performers, using the model of free cash flow to the firm, is as follows: Amgen's is $282 per share, against a current price of $150, and a 3.15 percent dividend yield. For Clorox, the intrinsic value is $192 against a price of $121, with a 2.67 percent dividend yield.

Starbucks pays a 1.8 percent dividend and has an intrinsic value of $118, versus a current price of $55.33. Kimberly-Clark's intrinsic value is $187, as compared to a price of $114, with a 3.22 percent yield.

And each of these companies has a long record of increasing dividends each year.

I saved the two worst performers for last. Gilead has an intrinsic value of $255, versus a share price of $74, with a dividend yield of 2.63 percent. Teva's intrinsic value is $96, versus $37, with a dividend yield of 3.75 percent.

Amgen, Gilead and Teva felt the threat of drug-price reductions emanating from both political parties. Kimberly-Clark had to deal with slower sales and a strong dollar. Clorox and Starbucks were simply out of favor and out of step with what Wall Street wanted.

Now ask yourself: Are you going to stop using Clorox, or drinking coffee made by your favorite Starbucks barista? Could it be that Wall Street is simply wrong? …

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