This year, one of my goals is to balance DivGro's holdings across all 10 sectors in my watch list. In my view, sector-balanced does not mean an equal number of holdings in each sector. I prefer to target the sector distribution of my watch list. Since there are more candidates in the Energy and Financials sectors, for example, I want more holdings in those sectors than holdings in the Materials and Telecommunication Services sectors, with fewer candidates. Note that I have a dynamic watch list, which means that the ideal sector distribution changes from month-to-month.
In a continuing effort to diversify DivGro by sector, I search for the best available candidates by sector and bias my purchases to sectors that are under-represented.
For October, 45 stocks made the cut. I rank the stocks using a proprietary ranking system (out of 7 stars). These are the top ten stocks by rank, regardless of sector, with DivGro holdings highlighted:
Energy stocks (HP, OXY, SDRL, ARLP) dominate the top ten list, followed by Materials (BBL, BHP) and Financials (PMT, HMN).
The sector winners for October contain several DivGro holdings:
BBL (Materials), PMT (Financials), WMT (Consumer Discretionary),Since I'm still diversifying DivGro, I'm interested in the top sector candidates that I don't yet own. In the following list, I replaced sector winners with runners-up and marked those sectors with a diamond (◊):
PM (Consumer Staples), and BAX (Health Care)
|Helmerich & Payne Inc. (HP) • rank 1||(*******)||Energy|
|BHP Billiton Ltd. (BHP) • rank 4||(******-)||Materials ◊|
|NEW Copa Holdings SA (CPA) • rank 7||(******-)||Industrials|
|Horace Mann Educators Corp. (HMN) • rank 8||(******-)||Financials ◊|
|Daktronics Inc. (DAKT) • rank 12||(*****--)||Information Technology|
|NEW Tupperware Brands Corp. (TUP) • rank 21||(*****--)||Consumer Discretionary ◊|
|NEW AT&T (T) • rank 22||(****---)||Telecommunication Services|
|Avista Corp. (AVA) • rank 26||(****---)||Utilities|
|NEW Lorillard Inc. (LO) • rank 32||(****---)||Consumer Staples ◊|
|NEW Owens & Minor Inc. (OMI) • rank 40||(***----)||Health Care ◊|
HP repeats in the top spot for the fifth time in a row. BHP has been on the list for 9 consecutive months. HMN is repeating for the fourth time, while DAKT and AVA are both repeating from last month.
• Helmerich & Payne (HP) | growth 42 yrs | yield 2.81% @ $90.44 | 5-yr CAGR 46.9% | 10-yr CAGR 23.3%
HP is an energy-oriented company engaged in contract drilling of oil and gas wells. The company was incorporated under the laws of the State of Delaware on February 3, 1940. HP is trading at a discount of 10% to my fair value estimate of $99.40. It is a Dividend Champion with an exceptional growth rate.
• BHP Billiton Ltd. (BHP) | growth 12 yrs | yield 4.47% @ $52.91 | 5-yr CAGR 10.6% | 10-yr CAGR 22.3%
BHP is one of the world's largest diversified natural resources companies. It is involved in mineral exploration, production and processing; oil and gas exploration and development; and steel production and merchandising. BHP trades at a discount of 30% to my fair value estimate is $74.15.
• Copa Holdings SA (CPA) | growth 5 yrs | yield 3.58% @ $62.15 | 5-yr CAGR 58.6%
Incorporated in 1998, CPA is a Latin American provider of airline passenger and cargo service through two principal operating subsidiaries, Copa Airlines and Copa Columbia. The stock is trading at a discount of 3% to my fair value estimate of $116.40.
HMN is an insurance holding company, which, through its subsidiaries, markets and underwrites personal lines of property and casualty and life insurance and retirement annuities in the USA. The stock is trading at a slight discount to my fair value estimate of $29.80.
• Daktronics Inc. (DAKT) | growth 10 yrs | yield 3.25% @ $12.24 | 5-yr CAGR 27.2%
Incorporated on December 9, 1968, DAKT is one of the world's largest suppliers of electronic scoreboards, computer-programmable displays, and large screen video displays and controls systems. My fair value estimate is $11.61, so DAKT is trading at premium of 5%.
Incorporated in 1996, TUP is a global direct seller of products across multiple brands and categories through an independent sales force of 2.8 million. My fair value estimate is $73.53, so the company is trading at a discount of about 5% to fair value.
• AT&T (T) | growth 30 yrs | yield 5.22% @ $35.36 | 5-yr CAGR 2.6% | 10-yr CAGR 4.9%
Incorporated on October 5, 1983, T is a holding company providing telecommunications services in the United States and worldwide. Services include wireless communications, local exchanges, long distance services, data/broadband and internet services, and many other services. T is trading at my about fair value.
• Lorillard Inc. (LO) | growth 7 yrs | yield 4.11% @ $60.27 | 5-yr CAGR 29.1%
Founded in 1760, LO is the oldest continuously operating tobacco company in the United States. Through subsidiaries, it is engaged in the manufacture and sale of cigarettes and electronic cigarettes. LO is trading at 9.5% discount to my fair value estimate of $66.
• Avista Corp. (AVA) | growth 12 yrs | yield 4.16% @ $30.88 | 5-yr CAGR 12.1% | 10-yr CAGR 9.6%
AVA is a diversified energy company engaged in the generation, transmission and distribution of energy in North America. AVA also operates Avista Capital, which owns all the company's non-regulated energy and non-energy businesses. My fair value estimate for AVA is $33.114 so its trading at a discount of about 7% to fair value.
• Owens & Minor Inc. (OMI) | growth 17 yrs | yield 3.05% @ $32.56 | 5-yr CAGR 12.5%| 10-yr CAGR 15.2%
Founded in 1882 and headquartered in Mechanicsville, Virginia, OMI is a Fortune 500 company that provides third-party logistics services to manufacturers and suppliers of healthcare and life-science products. It currently trades at a premium of 8% to my fair value estimate of $30.
Considering my usual position size of $2,500, I have enough cash for 3 buys. Based on the latest sector distribution in my watch list, DivGro is under-represented in Industrials, Materials, Utilities, and Telecommunication Services. HP looks attractive, here, but DivGro is overweight in Energy. I'll probably look at CPA first, but the stock seems a little risky. As I've mentioned before, BHP would be a great candidate, but I already own the substantially similar BBL.
The market correction in September is giving us some opportunities here! Do you like any of these stocks? Please share your thoughts and ideas in the Comment section below!