Trading is not a game of exacts. Perfectionists need not apply. Markets are made up of many irration...
The "Wright" Stuff
01/27/2006 12:00 am EST
In his stock selection process, Kelley Wright focuses exclusively on "quality blue chips," a term that could equally describe both his top-tier research and top-performing dividend-based investment strategy. Here, he assesses Pfizer and AT&T as his top picks for 2006.
"Our investment strategy is based on historical parameters of dividend yield. When all other factors, which rate analytical consideration have been digested, the underlying value of dividends, which determines yield, will in the long run also determine price. The key to value, therefore, lies in yield as reflected by the dividend trend.
"Individual stock prices fluctuate between repetitive extremes of high dividend yield and low dividend yield. These recurring extremes of yield establish Undervalue and Overvalue price levels. When a dividend is raised, the Undervalue and Overvalue price levels are raised automatically so they will continue to reflect the historically established yield extremes. Each stock has its own distinctive high and low yield characteristics and must be evaluated individually.
"My instincts based on my experience lead me to believe that 2006 will be the revenge of big pharmaceutical companies. As such, my top conservative pick for the coming year is Pfizer (PFE NYSE). The stock took forever and a day to decline to a level where the dividend yield rose to the historic level of undervalue that we look for. With a fresh win in the courts protecting their patent on Lipitor, PFE is positioned to reap the benefits of a pipeline that is poised to deliver. The 4% plus yield is a bonus.
"While I also like gold and oil for 2006, I'm going to go to big telecom for my speculative pick— AT&T (T NYSE). Now that AT&T and SBC have joined, additional money and time will need to be devoted to streamlining operations and effectively reorganizing assets. The new AT&T now seems poised to emerge as the clear winner in a decade long battle with its many competitors.
"Granted, calling AT&T a speculative stock probably sounds like I've spent too much time in the southern California sun, but—based on our dividend strategy— the stock never did finish its declining trend to a dividend yield of 7%. However, in the current interest rate environment, a return to a 7% yield on the stock is highly unlikely. As a result, a 5.5% and a world of upside potential will have to suffice."
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