Stock Buylist for 2020

In a previous post, I had promised a stock buy list for 2020. Its a list of companies that I would like to buy if the market dips again. That next dip will create an opportunity to buy in these stocks when they go on sale. It’s important to know what you want to buy!

While I am not providing a deep dive today, I will work on doing individual posts about each stock, but here are the highlights of some great companies to invest in:

AbbVie Inc (ABBV)

AbbVie is a Pharmaceutical company that specializes in discovering, developing, manufacturing, and selling pharmaceutical drugs. It operates in the US and internationally.

Pros:

  • ABBV is a Dividend Aristocrat, a company that has annually increased their dividend for at least 25 consecutive years. So they have demonstrated commitment to the dividend.
  • It is positioned well in the blood cancer market, which has durable pricing power.
  • An excellent pipeline of new immunology drugs
  • The purchase of Allergan will help diversify the business more.
Jobs with Allergan, Inc.

Cons:

  • The immunology market is very competitive and first to market usually wins (which ABBV is not going to be first to market)
  • Humira is about 50% of sales and is facing new stiff competition, which will put a strain on ABBV’s earnings for the next few years.
  • A massive debt load due to the acquisition of the Allergan deal.
1. Humira | FiercePharma

I would look to buy this stock in the low 80s or below. It should probably be around mid-90s but will be under pressure while ABBV works on diversifying its revenue sources. It has a healthy dividend of almost 5%.

Ally Financial (ALLY)

I am currently invested in Ally and have written about it from time to time. Ally is an online bank who also does a few other things.

Pros:

  • Undervalued stock due to risks which presents an opportunity for a value investor
  • They have increased their dividend by 58% since 2016 with five raises.

Cons:

  • Low-interest rates for a long time will put stress on earnings
  • Ally’s earnings are disproportionately geared towards the auto market. With higher than usual delinquencies and charge-offs as well as reduced dealer financing, this will create risks for Ally’s business model.

I still believe that when the market stabilizes, this stock will be in the low 30s, but with the significant risks mentioned already, Ally will probably trade around $18-20 for the next year. I would be interested in purchasing more stock if the stock drops below $15.

Honeywell International Inc (HON)

Honeywell International Inc. operates and owns a diversified technology and manufacturing portfolio of products worldwide. HON is really large and diversified company, see all of the different industries that HON touches:

  • Aerospace
  • Buildings & Cities
  • Chemicals & Materials
  • Healthcare & Pharma
  • Industrial & Manufacturing
  • Retail
  • Safety
  • Sporting Goods
  • Supply changes

Pros:

  • Solid management has led to Honeywell is one of the best run industrial companies.
  • Honeywell has a software offering that is making waves in quantum computing innovations, which is a tech side to HON that most do not acknowledge Honeywell is making its way into!

Cons:

  • The biggest issue with Honeywell is that about half of its sales are in the aerospace and oil & gas industries which will take time to recover from.
  • As Honeywell ventures into new markets like their software opportunities, it is uncertain how successful they will be compared to their successful core products.
Honeywell International

I would be interested in buying Honeywell anytime it dips under $130. I think it has the opportunity to grow to $160 depending on how the new products and particular industries recover from the virus. Also, I should state too that the dividend yield is currently 2.5%, which is a pretty solid offering during these uncertain times.

International Business Machines Corp (IBM)

IBM is from the old guard of pure blue-chip stocks! They have been working on changing their business from hardware to being more competitive in the cloud space.

Pros:

  • IBM has a large customer base, and they have been less inclined to rock the boat with changes that have helped IBM maintained revenue.
  • IBM had a massive push for Watson and is currently undergoing a turnaround and proving to get some traction and adoption by the healthcare industry.
  • IBM is also getting some traction in block and chain technology used for logistic companies, and it should provide more stable revenue in the future.
Why Has IBM's Watson Failed? | Armstrong Economics

Cons:

  • Cloud offerings have drastically cut the expenses of switching from IBM mainframes, which will impact the customer base.
  • Will see a significant impact on IBM’s database clients as lack of applications is starting to outweigh the costs of switching services.

This is a company in the middle of a turnaround with a turnover of revenue sources, which will impact overall performance. I would not start a position until it drops below $100 and probably more likely under $95, as I think a fair price is the $115 range.

To be fair, IBM also has an enormous dividend at 5.5%, so even if IBM can maintain market price, you will have decent returns.

Johnson & Johnson (JNJ)

This is a monster company that provides consumer, pharmaceutical, and medical devices in the health care field worldwide. The company was founded in 1886, so it has a long track record performance. Talking about a long track record, JNJ is a Dividend Aristocrat & a Dividend King.

Top Global Medical Device Companies - Medical Product Outsourcing

Pros:

  • Dividend Aristocrat & Dividend King means they have 50+ years of consecutive dividend increases. Again doubt they will want to ruin that record anytime soon.
  • Diverse offerings across the healthcare industry help insulate JNJ from economic downturns like COVID.
  • Some specialty drugs are in the pipeline that has durable pricing power to promote growth.

Cons:

  • The overall drug pipeline is weak compared to competitors considering the size of JNJ. This could cause JNJ to need an acquisition to continue growth in the drug pipeline.
  • Talc powder and opioid drugs have legal actions against JNJ, which could cost the company billions.
  • Same as ABBV that some of the core drugs are starting to face competition, which will affect future growth and earnings.
Johnson & Johnson damages cut in half in talcum powder cancer suit

JNJ should probably be in the $130s and I would be interested in buying JNJ if it drops under $120 preferably if it drops under $115. It has a dividend of just shy of 3% so not to bad there either considering they raise it each year.

Coca-Cola (KO)

Do I even need to provide an intro for Coca-Cola? This is a beverage company with tons of brands that was founded back in 1886.

Coca-Cola - Wikipedia

Pros:

  • Dividend Aristocrat & Dividend King means they have 50+ years of consecutive dividend increases. Again, I highly doubt they will want to ruin that record anytime soon.
  • The biggest company by almost three times compared to the next competitor in the nonalcoholic drink market.
  • Massive marketing budget to maintain brand awareness and customer loyalty
  • KO is looking to expand into ready to drink coffee which is the fastest-growing non-carbonated segment.

Cons:

  • Not well-diversified as most earnings come from soda.
  • High growth categories, such as coffee and water, have intense competition. Additionally, coke does not have strong brand recognition in those segments
  • Currency exposure from international business has been negatively affecting earnings recently.

Coke is a massive powerhouse in the soda industry and is well-positioned to navigate the current crisis. The stock is probably a buy right now as it should trade around $55, and at $44, it’s a discount. If the market drops, this will not lose as much as other stocks, so don’t expect a considerable discount. Also, the dividend has almost a 4% yield.

MAIN Street Capital Corp (MAIN)

Main is a BDC that operates in the lower middle market to provide funding for companies. It is a very well-run company that usually demands a premium.

Pros:

  • Monthly dividend stock!
  • Exceptionally well run business that manages risk well.
  • Dedicated to dividend

Cons:

  • Overvalued as stockholders have driven up the price for safety and income
  • Debt risk as businesses struggles; the loans may have higher default rates than average.

Overall, MAIN is a great company, and while the valuation is costly right now compared to its earnings, I would be interested below $20.

3M Company (MMM)

3M develops & manufactures various products worldwide. There are four business segments that 3M operates in:

  • Safety and Industrial
  • Transportation and Electronics
  • Health Care
  • Consumer
Why 3M - Energy Products Distribution

Pros:

  • 3M has a massive R&D budget, which equates to about 6% of net sales. This keeps competitors at bay with constant innovation.
  • Even with sales down from the 2020 plan 3M is still up 2.7% vs. 2019 Q1
  • Greatest capabilities in the U.S.: 76 plants and distribution centers in 29 states; $5B exporter; global R&D center in St. Paul
  • Robust capabilities around the world: plants and distribution centers in 54 countries, 3 R&D centers in Asia and Europe

Cons:

  • Economic Slowdown in China will impact revenue
  • Still competition in automotive and semiconductor markets
  • R&D uses a lot of capital but has not proven to provide significant sales growth

I think I would be interested in buying 3M below $145 as it could grow to $170. It also has a 3.7% yield, which is a bonus of such a healthy stock and company.

Realty Income Corp (O)

Realty Income Corp is a REIT, and it is the King of monthly dividend stocks. O almost always trades at a premium as the company is run by excellent management and has a fantastic track record. Their property is 83% retail, but the shops are reliable such as Walgreens, 7-Eleven, Dollar General, to name a few.

Pros:

  • It is a dividend aristocrat that provides a reliable monthly dividend through all market conditions.
  • O has the leverage and financial ability to take advantage of investment opportunities when available.
  • Exceptionally well run and transparent company with an excellent track record.

Cons:

  • As O grows, it continues to take more significant deals to have meaningful growth, which may require higher risk to get an opportunity.
  • Rising interest rates and inflation are a real risk, but O will benefit from the Fed announcing to keep the rates low for a few years.

If you can get Realty Income for less than $55, that is a sweet deal, and it currently has a yield of over 4.5%.

Philip Morris International Inc (PM)

Philip Morris controls 28% of all tobacco sales in the world. It is the largest publicly traded tobacco company. Its development and implementation of the iQOS have great potential and, if allowed in the US, will provide a significant boost to sales. PM commands a lot of loyalty in the highest price segments and is positioned well to benefit from that loyalty!

Pros:

  • Worlds largest, combined with addictive products, give it excellent pricing power.
  • Possibility of selling iQOS in the US not priced into the stock
  • Product loyalty is strong

Cons:

  • Regulation and legislation
  • Tax laws
  • Currency exchanges
  • Debt

If you want to read more about my PM, I wrote a detailed post recently, read it here. Philip Morris is worth consideration at $70 with a fair market value that I calculate to be around $100. Currently, it has a dividend yield of over 6%.

Visa (V)

Visa is a payment company that operates VisaNet that is a processing network that enables authorization, clearing, and settlement of payment transactions.

Pros:

  • Visa has a dominate market share
  • Noncash payments still have growth potential
  • Further scalability of the business should allow Visa to improve their margins

Cons:

  • Being the leader in the market provides more opportunities to lose market share than gain.
  • Mastercard and Visa are targets of regulators for cornering the market and have had to pay fines.

Visa is overvalued some currently, and I would be interested in buying some below $160. The biggest downside for me personally is that the dividend yield is .6%, which is very low.

Walgreens Boots Alliance, Inc (WBA)

Walgreens operates three segments which are: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale.

Pros:

  • Having the largest retail pharmacy network which gives Walgreens the ability to reach 80% of US consumers
  • Building strategic partnerships to increase store utilization and profit.

Cons:

  • Healthcare reform and pricing transparency likely to create volatility and could pose a threat.
  • Internet retailers could pose a threat to sales.

I am interested in Walgreens below $40 and determine that it could rise to about $55. The dividend yield is over 4%.

Conclusion

This is my personal buylist which hopefully gave you some ideas to research more yourself. Let me know if you agree or want to add any to my list.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Please read my Terms & Conditions Page for a full disclaimer.

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