Will These Five Stocks be a Trick or Treat?

Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It’s almost that time of year again when the kids, and some adults, will dress up in Halloween costumes and go from door to door. Instead of the goodies that typically get handed out what if 5 stocks are put in your bag this year?

Apple (NASDAQ: AAPL)

The tech giant and most valuable company on Earth just released the latest model of its very popular smart phone. Over 5 million iPhone 5's were bought over the first three days it was available. About 4 million units of the previous model, the iPhone 4s, were sold over a comparable time period. Retail sales in the electronics sector rose over 4.5% in September, significantly fueled by Apple iPhone sales although the device was only available for the last nine days of the month. The company will probably release an iPad tablet with a smaller screen size shortly.

The stock has taken a hit over the last few weeks, declining about 10%, in part based upon negative publicity in the financial media. Some of the more notable examples include: "iPhone sales were less than expected," "the injunction against the Samsung Nexus smartphone was lifted by a federal appeals court and can only mean that iPhone sales will suffer," and "it's been a year since Steve Jobs died and Apple will not be as successful without him at the helm." Apple will announce 4th quarter earnings later this month. Let's see if the bad press continues.

In my mind this may be a good opportunity to get in at lower price point. The company's fundamentals are still strong. Backing out its huge cash position, Apple has a P/E less than 10 which is significantly lower than its peers and historical average. Apple derives a significant portion of revenue and earnings from the iPhone. The technology in the new device will allow it to be used on even more carrier networks, especially in China and India; markets it hasn't fully penetrated yet. It now controls about 70% of the tablet market with the iPad and this should stay firm or even increase after the iPad mini goes on sale.

I think I'd want Apple in my bag.

Wal-Mart Stores (NYSE: WMT)

Instead of buying candy at the number one discount retailer and number two ranked company on the Fortune 500 list maybe you want some shares of their stock.

The Bentonville, AR based giant keeps getting bigger and better.

It just announced an expansion of a program that provides same day delivery of more than 5,000 different items for a flat fee of $10 and the acceleration of small store openings to more effectively complete with the very low cost dollar stores. Also, Wal-Mart says its goal is to increase online sales to $9 billion by 2014. 

The company has steadily increased earnings over the years and the stock has outperformed most of those in the Dow Jones Industrial Average. In addition, it pays a dividend of $0.40 a share and yields about 2.1% right now. It is a member of the Dividend Aristocrats, companies that have increased their payout every year for at least 25 consecutive years. 

I'd want Wal-Mart shares instead of candy. 

WMT data by YCharts

And what about candy companies?

The Hershey Company (NYSE: HSY) is the largest maker of chocolate candy in the country and has been around  in one form or another for over a century.

Hershey has grown earnings over the past 5 years. It pay a dividend of $1.52 a share and yields about 2.2%. Two potential negatives are that the company has been accumulating debt, its long term debt/equity ratio is 175%, and it lacks free cash flow. However, so far this hasn't affected the stock price. It has significantly outperformed the rest of the market and was not affected by the 2008 financial crisis as much. The question is if this trend can continue?

Maybe I'd want a Hershey bar and a few shares put in my bag this year.

^SPXTR data by YCharts

Speaking of Apple: there have been some reports circulating that Intel Corp (NASDAQ: INTC) may be dropped as a supplier for the Mac product line.

Intel derives about $5 billion of its revenue from Apple. Any reduction of that magnitude would have a fairly significant impact on the top line for the chip maker and could impact the bottom line down the road. With PC sales in general lagging, Intel does not need any more bad news like this.

For the time being, things look OK for Intel. Revenue and earnings have been growing, debt is low, and there is lots of free cash flow.

Losing the Apple account would be a cruel Halloween trick for them. Keep an eye on the news. Maybe no Intel shares in the bag this year?

INTC Revenue TTM data by YCharts

Several companies just announced dividend increases. One of them, Cisco Systems (NASDAQ: CSCO), will increase its payout ratio by 75%. That will result in an extra $1.25 billion for shareholders. Now that's a treat. Currently the stock yields about 3%. Cisco has only been paying the dividend a short time but has been steadily increasing it.

Cisco is generating plenty of cash to keep those payouts flowing in the future. And it's growing. Earnings have gone up 28% over the trailing 12 months. It's reasonably priced based upon a current P/E ratio of 12, 25% lower than its 5-year average and much lower than its peers.

CSCO Dividend data by YCharts

 

So it looks like there are a few stocks that I'd want in my Halloween bag this year. They will also give me satisfaction in the future too with growth potential and dividends. I may want to get a costume and go out this year on October 31.



 

 


Mathman6577 owns shares of Apple. The Motley Fool owns shares of Apple and Intel. Motley Fool newsletter services recommend Apple and Intel. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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