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This is not the best time to be a value investor. By most measures the stock market is in "expensive" territory. The Dow, S&P, and Nasdaq indexes each hit multi-year highs over the last few trading sessions. The market's P/E ratio, meanwhile, has jumped from a reasonable 14 times earnings a year ago, to a much richer 17 now. And a less discussed -- but equally important -- ratio, the total U.S market cap to GDP, is also blinking red in the overvalued zone.
But one of the real strengths of equity investing is the fact that not all stocks march along in lock-step with the market, and so an expensive index can still offer plenty of individual deals. To try to tease out some of the quality stocks that might have been left out of the rally, I ran a stock screen for large-cap dividend payers that met these four metrics:
Strong cash flow growth - among the highest in the market
Strong EPS growth - among the highest in the market
A PEG ratio below 1.0 - for growth at a discount price
A dividend yield above 2.1 percent, the market's yield
The screen confirmed that the rally hasn't taken all solid businesses into new heights with it. Here are three good examples:
Intel (NASDAQ: INTC) - Despite constant warnings of the impending death of the PC (see the Fool's ad below), this chip maker had a terrific year last year. Intel clocked record revenue, net income, and earnings growth on strength in emerging markets and enterprise sales. Those results also powered a 25% boost in the company’s dividend, which now sits at an almost 4% yield. With Intel's new generation of processors taking aim at rival AMD's (NYSE: AMD) graphics business, growth looks set to continue for this cash-producing mega cap.
And yet the market has the company priced more like an unproven small cap. Nervous about mobile computing trends, Wall Street has given Intel a P/E ratio below 10 and a PEG ratio of well below 1.0. Growth, income, and value -- Intel has it all.
Siemens(NYSE: SI) - Thanks to European market exposure, this conglomerate has also managed to stay out of the market's big rally. The company's shares are trading at a P/E of just 12, and are trailing the S&P by more than 10% this year. A challenging environment of global demand has hurt Siemens' results, but the company still managed a respectable 7% growth in revenue last year.
Siemens is also well positioned in both the energy efficiency and healthcare sectors, two areas that should see huge new investments over the coming years. And while they wait for those projects to pay off, investors can rely on Siemens' solid 4% dividend yield, which, at only 41% of net income, still has room to rise.
Seadrill(NYSE: SDRL) - But if a strong 4% yield isn’t enough for you, consider taking a deep dive for a chance at a truly big payoff. This Bermuda-based deep-ocean driller pays a hefty yield of over 8%. That dividend, jacked up by 30% last year, is being funded from a years-long spike in daily rates for the company’s rigs that has Seadrill’s revenues erupting.
Just be careful when plumbing depths like these. Daily rates could drop as quickly as they have risen if oil and gas demand hits a rough patch. And deep ocean drilling is a capital-intensive, risky business. This driller, for example, is sitting on $10 billion in debt, a staggering 50% of the company’s current market cap.
Bottom line
Despite a long rally that's left discount-shopping investors with few chances to participate, bargains remain in the market, as long as you know where to look. And for dividend seekers with an eye for strong business results, these three companies are a great place to start your search.
SigmaSwan has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Seadrill, Ltd. Motley Fool newsletter services recommend Intel and Seadrill, Ltd. 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.
