April 2019 Watchlist

Once again, I accumulated some funds and am thinking how to best deploy it. It became a good practice to create a watchlist and post it in my blog, as I tend to give more consideration to the companies I am watching, as a result. I also can hear your opinions and some insights about the companies.

The stock market is running pretty well since the beginning of the year. It means that there are not that many attractive looking companies with current price levels. So I have a few choices. First option is to wait for a market pullback. Another option is to try and find companies that are still undervalued in this bull market. Finally, I can just ignore the market timing and add another solid company which would stay in my portfolio for years to come.

Let’s see what I came up with this month.

WestRock Company (WRK)

Let’s start the list with a new name which was never in my watchlist before – WestRock.

Short description about the company:

WestRock Company manufactures and sells paper and packaging solutions for the consumer and corrugated markets in North America, South America, Europe, Australia, and Asia. The company operates through three segments: Corrugated Packaging, Consumer Packaging, and Land and Development.

The company was created as a result of a merge between RockTenn and MeadWestvaco in 2015. It also acquired KapStone Paper and Packaging Corporation for $4.8B last November.

This company was really beaten during the last year. Let’s just look at the price graph for the last 12 months:

It’s current price is almost half of what it was a year ago. Of course, there are reasons for that. Packaging industry isn’t in the best shape. Containerboard companies are expanding capacity. At the same time, the demand is slowing due to alternative packaging options and slowdown in the economy. It will be interesting to see if the company is able to get through but it may be a good time to enter this industry. But we are never sure if this is the bottom yet.

Anyway, let’s review how the company ratios stand:

  • Current price – $35.49;
  • P/E TTM – 10.11;
  • Dividend yield – 5.13%;
  • Payout Ratio – 52%;
  • Debt/Equity – 0.93.

Honestly, the valuations are looking pretty good at the moment. There are definitely headwinds in the industry but I will keep an eye on this company.

Uniqa Insurance Group AG (UQA)

Second idea is borrowed from a fellow blogger Dividend-Cashflow. It was presented in his latest watchlist and the company caught my attention.

Shortly about the company from their website:

The UNIQA Group is one of the leading insurance groups in its core markets of Austria and Central and Eastern Europe (CEE). We have approximately 40 companies in 18 countries and serve about 9.6 million customers. With UNIQA and Raiffeisen Versicherung, we have the two strongest insurance brands in Austria and are well positioned in the CEE Markets.

First of all, I think it would be nice to diversify my portfolio by adding a company from another country. I don’t own any company listed in Austrian exchange or any other Western European country. It would save some currency exchange costs as well, as I wouldn’t need to convert EUR to USD. Furthermore, I don’t own any insurance companies, so it would be diversification in sector as well.

Let’s see how company’s fundamentals are looking at the moment:

  • Current price – €9.51;
  • P/E TTM – 13.72;
  • Dividend yield (with proposed dividend of €0.53/share) – 5.6%;
  • Payout Ratio – 77%;
  • Debt/Equity – 0.56.

The company has been steadily increasing in price this year. Still, the ratios look pretty good and I especially like that juicy dividend yield. I compared it with a few other insurance companies in Europe and the fundamentals are encouraging.

Dominion Energy, Inc. (D)

Final company in the list was featured in my latest watchlist as well. I still didn’t manage to purchase any Utility company and Dominion Energy is looking the most attractive to me.

Dominion Energy, Inc., commonly referred to as Dominion, is an American power and energy company headquartered in Richmond, Virginia that supplies electricity in parts of Virginia, North Carolina, and South Carolina and supplies natural gas to parts of West Virginia, Ohio, Pennsylvania, North Carolina, South Carolina, and Georgia. Dominion also has generation facilities in Indiana, Illinois, Connecticut, and Rhode Island.

The company acquired Questar gas in the Western United States, including parts of Utah and Wyoming, in September 2016. In January 2019, Dominion Energy completed its acquisition of SCANA Corporation.

At the end of February, the share price was standing at $75.05 which was close to their 52-week high. I was waiting for a pullback but the price is still hovering at around $75 at the moment. If I were to purchase shares of Dominion, it would be the case to ignore market timing. Let’s see how the company’s main ratios stand at the moment:

  • Current price – $74.92;
  • P/E TTM – 19.70;
  • Dividend Yield – 4.56%;
  • Payout Ratio – 89.30%;
  • Debt/Equity – 1.75.

Not much changed since my latest watchlist. It still bugs me that I don’t have any Utility company in my portfolio and maybe I should just ignore the price level. The dividend yield is high which is good. But their P/E and dividend payout ratios look too high for my liking.

Summary

There you have it – three companies from three different sectors are on my radar this month. I’m trying not to pay attention to all the market noise and thoughts about recession, as they are hovering for a few years already. In my opinion, the main point is to keep investing to companies that will survive those recessions and that’s exactly what I’m trying to do.

What do you think about my list? What would be your top choice? Are you considering adding some other company to your portfolio? As always, I would love to hear your opinions!

 

Photo by Brendan Church on Unsplash

9 thoughts on “April 2019 Watchlist

  1. I bought WRK at 39 and something last week. Should have waited obviously. But the numbers made sense then so they really make sense now. I might lower my cost basis at current levels. Will for certain buy more if they drop another 10%. Long term trend with e commerce rising i feel good about this company.

    1. Thanks for visiting, Norwegian!
      I agree that the numbers are looking attractive now. It’s hard to say if it’s the bottom yet but you made a good point that you may average down in case the price keeps falling. It needs to climb back at some point for sure with that dividend yield!
      And I didn’t think about the e-commerce factor. Indeed, the goods need to be packaged and hopefully WRK are taking advantage of that.
      Good luck with your investment!

  2. Does WRK have a feasible plan for the future? You mention alternative packaging. Are they looking to reinvent themselves? Do they have the cash for it? If yes, looks good.

    If it feels like they’re just waiting or they don’t have the resources for change then feels risky.

    I like the insurance company stats. It’s such a great industry. But I feel the ones who will win are the ones that make it easiest for the customer. Insurance industry has gone through quite a change in recent years in Finland. If you can’t do everything online, preferably 24/7 on phone or chat, you’ll lose your customers to competition. So if they’re a modern company in comparison to competition, then love it.

    1. Hi Eelis,
      Thanks for visiting and you are raising very good questions! It sounds to me that WRK is not trying to reinvent themselves but rather are investing to new paper mills / buying some companies and trying to reduce costs and increase their income margin. E.g. in their annual report they are saying:
      “One of the most impressive financial results for the year was the 22.6% Adjusted EBITDA Margin that we achieved in our North American corrugated packaging business, nearly 1,000 basis points over our 12.7% margin in 2012”.
      Another point from their annual report:
      “We deployed $348 million to strategic acquisitions and investments, primarily including the acquisitions of Plymouth Packaging and its Box on Demand® system, which has helped us to better serve the growing e-commerce market, and Schlüter Print Pharma Packaging, which has increased our exposure to the pharmaceutical market and expanded the geographic scope of our Consumer Packaging segment in Europe.”
      Of course, they have to make it sound good in those annual reports. There has to be a reason why their stock declined by so much and I haven’t figured it out fully yet 🙂 One of the reasons may be their debt level. At the moment, their Net leverage ratio (Total debt – cash and cash equivalents, divided by EBITDA) stands at 2.89x which is pretty high but manageable, in my opinion.
      Regarding insurance, I agree with your point. Unfortunately, I am not familiar with UNIQA from customer experience perspective, as they don’t operate in Lithuania. I would need to trust the numbers that are looking good so far.
      Do you have any favourites from the insurance sector?
      As with most of the companies, it is hard to predict the future. You just never know what is going to happen 🙂

  3. WRK looks interesting, but they are heavy leveraged with 11bn$ fin debts. EBITDA is 2,8bn$. So its >5,0. Qestion how much EBITDA will add due to aquisition. Cannot find how much EBITDA the aquisition adds but rough calculation that 2018Q4 EBITDA was +60m$ so 2mo result is includes so it might be something ~300m$. Lets asume that with full aquisition result EBITDA would be 3,1bn$ so leverage is something around 3,5. Still to high. It might be KHC case here.

    Buut since I bought aditional KHC stocks when they cut their dividends this might be interesting buy 🙂 Packaging will not go away anytime soon.

    1. They are declaring Net Leverage Ratio to be slightly less than 3. That’s with agreed credit EBITDA, whatever that means 😀
      One thing I don’t like about this ratio is that the earnings may vary, but that’s with all the ratios…

      1. Well NetDebt/EBITDA is one of most important ratios to banks which show companiea capacity to repay debts. As dividends are after credit payment thing I think that with level of leverage that concerns banks should concern investors more. If you have problems paying credits your 100% will have to cut dividends.

  4. Different perspective. WRK stock has pretty nice insider trading. CFO and member of the board bought recently. Usually it is a good sign for future gains. But let’s wait for earnings report on 30th of April.

    1. Hi Aitvaras, thanks for the comment! I tend not to look into the insider trading too much. But it looks like the earnings report wasn’t too bad, as the price of WRK is up by quite a bit 🙂

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