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IQ Trends: Ten Picks for Quality & Value

05/16/2014 9:00 am EST


Kelley Wright

Managing Editor, Investment Quality Trends

As all stocks are not created equal, you need to have a means or mechanism to separate those stocks that are worthy of investment consideration from those that are a waste of your time and money, explains blue chip advisor Kelley Wright in Investment Quality Trends.

In our approach, there are two primary considerations: define quality; and, establish boundaries of value.

A quality stock, according to our definition, will achieve the designation of Select Blue Chip after it has met at least five of the six following qualifications and may remain with four criterions:

1. Dividend increases 5 times in the last 12 years

2. S&P Quality Ranking in the “A” category

3. At least 5 million shares outstanding

4. At least 80 institutional investors

5. At least 25 years of uninterrupted dividends

6. Earnings improved in, at least, seven of the last 12 years

Once a stock has passed through that filter, it is then analyzed to establish its repetitive areas of high and low dividend yield, or boundaries, if you prefer.

Once you have a universe of high-quality stocks that are ordered in terms of their current degree of value, you can further refine the investment process with two more considerations: identify which stocks carry the most weight in the major market sectors; and, understand the current risk/reward profile of the broader market.

Since Mr. Market rarely provides investors the optimal investment environment, it is important to exercise patience. Building and maintaining the enlightened portfolio is not a sprint, it is a marathon.

Our Timely Ten portfolio is our reasoned expectation based on our methodology and experience, that these ten currently Undervalued stocks offer the greatest real total-return potential over the next five years.

CVS Caremark (CVS)—yielding 1.5%

Chevron (CVX)—yielding 3.2%

Coca-Cola (KO)—yielding 3.0%

TJX Companies (TJX)—yielding 1.2%

Occidental Petroleum (OXY)—yielding 3.0%

Abbott Labs (ABT)—yielding 2.3%

Walgreen (WAG)—yielding 1.9%

PepsiCo (PEP)—yielding 2.7%

Reliance Steel (RS)—yielding 2.0%

AT&T (T)—yielding 5.2%

Do we believe that all ten will appreciate simultaneously or immediately? Of course not. Our four-plus decades of research and experience, however, leads us to believe that these stocks, purchased at current Undervalued levels, are well positioned for both growth of capital and income.

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