The Envelope Please!
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Oscars are upon us and I'm getting ready for my favorite party and the best drinking game ever, downing a slug every time Oscar winners thank their mother. So Deutsche Bank's equity strategy team and analyst David Bianco have kindly come up with a list of talented nominees for their list of favorite stocks for 2013. Their criteria was large cap, over $10 billion, 2013 EPS growth greater than 5%, a P/E of 18 or below, and net debt/market cap ratio less than 30% (ex-financials).
But folks, they're all winners and it's an honor to be nominated, right? Naah. We all know only five categories matter in the Oscars, so let's whittle this down to the best five by tweaking the filter to a 17.5 P/E or less, yield of 2% or higher, EPS growth rate for 5 years greater than 7%, and dividend earnings growth of better than 4% over five years.
Using that criteria it comes down to these five stocks and three of them are Dividend Aristocrats having raised dividends for 25 years or more. Even better, it ends up being diversified as well.
The Envelope Please
And the outperformers are: Intel (NASDAQ: INTC), McDonald's (NYSE: MCD), Illinois Tool Works (NYSE: ITW), US Bancorp (NYSE: USB) , and Air Products & Chemicals (NYSE: APD). Of these the three Dividend Aristocrats are McDonald's, Illinois Tool Works, and Air Products & Chemicals.
Would the statuesque beauties please escort these winners to the stage? Who are these Amazons, anyway? Don't forget to thank your sainted mothers. Time for a slug. In much less time than an acceptance speech here's why they won (with titles from former Oscar winners and nominees.)
Up In The Air
Air Products & Chemicals, the specialty gases company, has been increasing dividends for 29 years. The Allentown, PA based company has a 16.16 P/E and a 2.90% yield. Air Products reported Q1 earnings on January 23 and raised guidance. CEO John McGlade sums up, from the news release,“Globally, economic growth underperformed our expectations for the quarter. We delivered higher volumes in Tonnage Gases, and Equipment and Energy. However, both Merchant Gases and Electronics volumes declined. Our operating performance was encouraging and we are seeing improvements from our cost and restructuring actions." The company also repurchased 5.71 million shares in Q1. FY 2012 saw just shy of $10 billion in sales.
The Academy is lovin' it. A cameo performance by the McRib and the supporting performance of the Dollar Menu helped raise McDonald's Q4 profits and offset weakness in Europe and Chinese chicken troubles. Coming soon to restaurants near you are Fish McBites also announced on the call.
McDonald's has now raised the dividend for 35 years and it stands at 3.30%. McDonald's almost didn't make the cut with its 17.50 P/E. But with 2013 EPS growth of 9% plus and being a Dividend Aristocrat McDonald's was a People's Choice with 69 million people served each day.
On the call CEO Don Thompson emphasized rest of world would also see localized menu offerings like lamb sandwiches in Australia and the Casse Croute sandwich in France. He stated initiatives like these should help drive traffic in Europe and other countries.
The Trip To Bountiful
The third Dividend Aristocrat is Illinois Tool Works, having raised dividends for 48 years for a current 2.40% yield and a 9.5% five year dividend growth rate. Bountiful, indeed! Sporting a lovely 13.09 P/E on the red carpet it also has a 10% plus EPS growth rate for 2013 and a 10% net debt/market cap ratio of plus 10%.
While Fellow Fool Nicole Seghetti points out that Illinois Tool Works has seen some decline in their construction and transportation segments it's also a diversified industrial, a triple threat if you will, with other talents in Power Systems & Electronics, Industrial Packaging, and Polymers & Fluids. The company has low corporate governance risks in all categories and is just the kind of solid talent the Academy loves. Maybe it should get a Lifetime Achievement award. As the economy slowly recovers so should construction and transportation. Illinois Tool Works reports January 29.
Hello (Not Goodbye) Mr. Chips
Intel is the only tech that made the more stringent cut with a 9.45 P/E and a surprisingly high yield of 4.30% with 12.94% five year dividend growth. The global chipmaker also has a 9.6% five year EPS growth rate.
Deutsche Bank gives it a $28 price target for almost 40% upside. Intel is only 10% up from its 52 week low of $19.53 and with a recent move into the cloud in a collaboration with Dell, it seems the company is shrugging off its PC shroud. Don't count out Intel picking up mobile market share from rival ARM Holdings and possibly, Qualcomm.
Million Dollar Baby
Last, but not least, is US Bancorp with a 2.40% yield and an 11.63 P/E with 7.80% EPS growth. The Minneapolis financial services company has $350 billion in assets. Deutsche Bank gives it a $38 price target for 15% upside.
It's not a limelight hog like Citigroup or Bank of America and is content to learn its lines, hit its marks, and go home. It reported Q4 earnings on January 16 with net income improving by 15.9% compared to the year ago quarter. Nothing showy and CEO Richard Davis commented on the call that with CCAR results in March the company has already applied for dividend raises and share buybacks.
Warren Buffett likes US Bancorp as well with a $2 billion stake. Fool John Maxfield has a little more color on the non interest income at US Bancorp and how it and Wells Fargo have successfully hedged interest rate sensitive operations.
Uh-oh. The orchestra is playing me off the stage. Any or all of these are good names for a long-term portfolio. Since McDonald's, Air Products, US Bancorp, and Intel have all recently reported it's easier to get in the names now with some clarity and time until the next release. Intel is my least favorite of these names but they're all winners. Take a bow and thank mom while you and I have a nip.
leglamp has no position in any stocks mentioned. The Motley Fool recommends Illinois Tool Works, Intel, and McDonald's. The Motley Fool owns shares of Intel and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!