17 Sep 3 “Perfect 10” Stocks Worth Considering
Assessing where the markets will go can sometimes seem like more art than science, and an arcane art at that. But the data is out there to make sense of the stock movements.
The Smart Score is a perfect example. Scanning through the whole of the database, and assembling the information for every stock according to 6 categories known to predict future share performance, the Smart Score combines those categories into a single score that allows investors to see at a glance how the stock is likely to move in the coming year.
That score is given on a scale from 1 to 10, with low scores indicating likely underperformance of the broader market, and higher scores indicating overperformance. A perfect score, a 10, is a rare gift for a stock. It doesn’t necessarily mean that every factor aligns perfectly – but it does indicate a potentially bright future for the stock in question.
Today, we’ve pulled up three ‘Perfect 10’ stocks, which are also fine defensive plays, with dividends yielding 5% or higher. At a time when volatility is returning to the markets, the combination of likely overperformance and a strong dividend return makes these stocks that investors should take notice of.
The first stock on the list needs no introduction, as it is a blue-chip standby of the S&P 500 index. AT&T (NYSE:T) is giant by any standard: the world’s largest telecom company, the US’ largest provider of mobile and landline phone services, and an emerging player in the content streaming business.
Telecommunications products became even more important than usual during the ‘corona half’ of 2020, and AT&T saw comparatively moderate losses in Q1 and Q2. EPS came in at 84 and 83 cents for the quarters, compared to 89 cents in 4Q19. Revenues, at $41 billion in Q2, were down 12% from the end of last year. In short, the company took a hit, but remains solidly profitable.
AT&T used those profits, in part, to keep up the dividend payment. The company has a reputation as a dividend champion, with 17 years of reliable payments behind it and a penchant for high yields. The current dividend is 52 cents per share quarterly and was paid out in August. At $2.08 annualized, this dividend offers investors a yield of 7.14%. That’s more than triple ~2% found among T’s S&P peers.
Ivan Feinseth, 5-star analyst with Tigress Financial, writes of AT&T, “The resiliency of AT&T’s wireless business should continue to produce positive near-term Business Performance and should continue to accelerate as the economy recovers […] The ongoing 5G rollout, together with AT&T’s ability to leverage its entertainment assets for an extremely high dividend yield, will drive long-term shareholder value creation, making the shares a compelling value…”
The resiliency of AT&T’s wireless business should continue to produce positive near-term Business Performance and should continue to accelerate as the economy recovers.
Feinseth does not set a specific price target, but he does rate the stock a Buy.
AT&T has 11 analyst ratings, split among 7 Buys, 3 Holds, and 1 Sell. This gives the stock a Moderate Buy from the analyst consensus. Shares are selling for $29.12, and the $33.78 average price target suggests it has a 16% one-year upside potential. (See AT&T stock analysis)
T Smart Score
Next on today’s list is Physicians Realty Trust (NYSE:DOC), a real estate investment trust that focuses on the acquisition, development, and management of healthcare properties. The properties are leased to healthcare delivery systems, hospitals, and physician practices. The company has a portfolio of properties across the lower 48 states, and boasts a market cap of nearly $3.85 billion.
During a pandemic crisis, owning a network of clinics and hospitals is an obvious asset. DOC bears this out in its 1H20 quarterly reports. The company reported 26 and 27 cents EPS in Q1 and Q2, in line with the results from 2019. Revenue also remained stable, and at $104.75 million is Q2, is even up slightly from Q4 of last year.
Maintaining revenues and profits makes it easy to maintain the dividend. DOC has a 7-year history of keeping up its dividend, and the current payment of 23 cents per common share quarterly gives an annualized payment of 92 cents and a yield of 5%.
Covering the stock for B. Riley FBR, analyst Craig Kucera sees DOC as both a strong player in its own right and a harbinger for its sector.
“…the portfolio performed quite well in 2Q20 and DOC has not taken any bad debt reserves as it expects the small number of tenants who have yet to pay 2Q20 rent to pay in fairly short order. 2Q20 results were ahead of expectations, and we anticipate management to build on its investment pipeline of acquisitions, new developments and mezzanine investments over the next several quarters… Given the strength of cash collections thus far in the healthcare REIT space relative to other REIT sectors and a rapidly opening healthcare economy, we anticipate multiple expansion in the sector,” Kucera wrote.
To this end, Kucera rates DOC a Buy along with with a $21 price target. That target implies 14% growth from current levels.
Overall, DOC’s Moderate Buy consensus rating is based on 7 Buys and 3 Holds. Shares are currently trading for $18.42, and the $20 average target suggests a 9% upside. (See DOC stock analysis)
Last on today’s list is LyondellBasell Industries (NYSE:LYB), a multinational global chemical company, with corporate offices in the Netherlands, the UK, and Texas. LyondellBasell is the world’s largest owner of polyethylene and polypropylene technologies, and derives much income from licensing their production. The company is also heavily involved in the ethylene, propylene, and polyolefin markets.
The economic shutdown – imposed against the coronavirus – hit hard at industrial manufacturers in the 1H20. LYB saw financial results drop sharply in both Q1 and Q2. Quarterly revenues fell from $8.2 billion at the end of 2019 to $5.6 billion in 2Q20, while EPS dropped from $1.91 to 71 cents over the same period. There are two positive notes: Q2 earnings beat the forecast by 16%, and the outlook for Q3 shows a sharp turn upward, with EPS forecast at $1.20.
Earlier this month, LYB paid out its dividend at $1.05 per common share. This marked the seventh consecutive quarter that the dividend has been paid at this level – it is important to note that the company did not cut or suspend its the payment, even during the height of the corona crisis. At the current level, the dividend annualizes to $4.20 per common share, and gives a yield of 5.58%.
Joining the bulls, JPMorgan analyst Jeffrey Zekauskas has upgraded his stance on LYB shares from Neutral to Overweight (i.e. Buy). His $88 indicates a 15% upside potential for the coming year.
In his comments on the stock, Zekauskas pointed out that the social lockdown policies have worked in the company’s favor.
“Domestic polyethylene (PE) demand has been growing in 2020 despite the recession and the quarantines, and the US producers have been successfully addressing the export markets. The effects of strong growth in the consumer and packaging markets have more than offset contraction in the industrial sectors… We think the efficient way of investing in the effects of these trends and changes in the petrochemical industry over the coming year is through Lyondell,” Zekauskas opined.
Overall, LYB shares have a Moderate Buy from the analyst consensus, based on 11 reviews that include 4 Buys and 8 Holds. The shares are selling for $76.55 and have recently appreciated right through the average price target of $74.60. Is Zekauskas’ upgrade on the stock a harbinger of more to come? This is one that bears watching. (See LYB stock analysis)
LYB Smart Score
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