Dividend Guru Outpaces His Peers

12/23/2013 8:00 am EST

Focus: STOCKS

Charles Carlson

Editor, DRIP Investor

Today, we continue our review of some of the best performing newsletter advisors in last year's Top Picks report. We talk with Chuck Carlson, editor of the DRIP Investor; the advisor's two favorite ideas for 2013 showed an average gain of 72%.

Steve Halpern: Joining us today is dividend and income expert Chuck Carlson of DRIP Investor. How are you doing today, Chuck?

Chuck Carlson: I'm fine, thank you.

Steve Halpern: Last year at this time, I asked you for your favorite conservative and speculative stock picks for 2013. Since then, your speculative choices are up over 100%-and even your more conservative pick is up 44%, so, it's a pretty sensational performance.

Chuck Carlson: Thank you.

Steve Halpern: First, let's look at your conservative favorite of the past year, which was CVS Caremark (CVS), the pharmacy company. Could you tell us the reasoning behind your original recommendation and what's happened with the company over the past year.

Chuck Carlson: Well, it was a company that we liked it's primary industry of drug stores. We felt that that was an area that would benefit from the Affordable Care Act. We also liked the pharmacy management operations that the company had via its Caremark division.

CVS has traditionally been a pretty solid, Steady Eddie performer and we felt that it would have the type of earnings and revenue growth in 2013, that a lot of companies wouldn't have, and you could buy that growth at, what we felt, was a pretty reasonable price, so the thesis worked out.

The other factor that helped, was that CVS has been boosting its dividend at a pretty rapid rate. That continued in 2013, to enhance the total return potential.

The idea that, here you had, you know, a fairly conservative company, but was going to be growing at above trend rates for corporate America, in general, and you could buy it at a reasonable price, was the main reason we went with the stock.

Steve Halpern: Now, is that bullish outlook something in the past now, or would you still remain optimistic on the company's prospects, looking out towards the next year.

Chuck Carlson: We still like the stock. It is still recommended by our firm. I would be surprised if we saw the returns in 2014 that we got in 2013, but we still believe it's a stock that will outperform the broad market in 2014, and rank it a buy, still, at these prices.

Steve Halpern: Now, let's turn to your more speculative pick from 2013, which was Yahoo (YHOO), and the stock's risen over 100%, since you recommended it. What made you choose that as a speculative favorite for the past year.

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Chuck Carlson: Well, Yahoo had all the ingredients of a classic special situation stock. You had new management coming in, Marissa Mayer from Google, which could be a fresh catalyst for the company.

You had, also, the opportunity for, kind of, financial engineering at the firm. I was really bullish on the fact that the company owned a substantial chunk of Alibaba, the Chinese massive online company, and, in fact, they still own about 24%.

Alibaba is huge, and they are planning to go public, I think, sometime early in 2014, which is going to be a huge windfall for Yahoo, and what Yahoo has been doing, it sold off some of its Alibaba, and has taken money to do stock buybacks, et cetera, so, and then, what's likely to be a tremendous IPO offering for Alibaba, is going to really assign a lot of value to that holding for Yahoo.

So, even outside of Yahoo's main businesses, they had this, kind of, financial kicker, and it's Alibaba's day, that, I thought at the time, was just very underappreciated by Wall Street, and that turned out to be the case, and that Wall Street has finally found appreciation for that holding in Alibaba, and the value of that, and that's one of the major reasons the stock has done so well this year.

Steve Halpern: Now, so much of what you expected for the company has come to pass. Does that mean that it's too late for investors in this situation, or would you still consider that an opportunity for investors looking ahead?

Chuck Carlson: You know, there's probably still an opportunity here, but I will admit that the major thesis of why I liked the stock is probably going to come to fruition here in the first quarter, when Alibaba does, in fact, go public, and we have a clearer idea of the evaluation and its impact on Yahoo.

So, we may be getting toward the end of the line for the stock as a special situation pick, and again, it may be one of those where you sell the news type things, when the IPO and the pricing is done, and people see just how valuable it is, there's probably one last spike in the stock, and at that point, maybe an opportunity for people to exit the position.

Steve Halpern: Well, again, congratulations on such a successful past year, and we look forward to your new ideas that will be coming up in the new 2014 Top Picks Report. Thanks for joining us.

Chuck Carlson: Thank you, Steven.

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