September 2019 Watchlist

I decided to sit down and assemble a watchlist of companies that look interesting to me at the moment. Even though I probably won’t be able to purchase any new stock in the upcoming month, it’s a good practice to keep looking and have some ideas when funds are available.

This time, I came up with 4 companies that caught my attention for one reason or another.

1. FedEx Corporation (FDX)

First up in the list is FedEx. Shortly about the company from Yahoo Finance:

FedEx Corporation provides transportation, e-commerce, and business services worldwide. The company’s FedEx Express segment offers shipping services for delivery of packages and freight. Its FedEx Ground segment provides business and residential money-back guaranteed ground package delivery services; and consolidates and delivers low-weight and less time-sensitive business-to-consumer packages. The company’s FedEx Freight segment offers less-than-truckload and other freight delivery services. As of May 31, 2019, it operated approximately 28,000 vehicles and 373 service centers.(…)

Company made a big bet in 2016 by acquiring a Dutch shipping company TNT Express for €4.4 billion. It is still trying to combine the business into its operations.

After declaring results of the first fiscal quarter of 2020 (company’s fiscal year 2020 interestingly starts in June), FDX stock price tanked by ~14% last Wednesday. It was biggest company’s one-day-selloff since December 2008.

Earnings fell to $2.84/share, compared to $3.10 a year ago. Revenue remained flat, compared to last year:

Source: FedEx First Quarter Earnings Report

Adjusted earnings ($3.05/share), compared to $3.46/share last year, do not include expenses related to TNT Express integration ($71 million). Analysts were expecting adjusted earnings of $3.15/share, so company only missed them by ~3%.

Company’s CEO Frederik W. Smith said that performance is struggling due to “weakening global macro environment driven by increasing trade tensions and policy uncertainty”.

Company also decreased their forecasts for the whole 2020 and are expecting earnings from $11 to $13 per share, down from previously expected $15.52/share.

Furthermore, company recently ended its contract to deliver ground packages and FedEx Express domestic contract with Amazon. Revenue from Amazon only accounted for ~1.5% last year but it presented some growth opportunities as well that are now gone.

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

  • Current price – $144.61;
  • P/E ratio (TTM) – 91.06;
  • Forward P/E – 12.13;
  • Dividend Yield – 1.80%;
  • Payout ratio (based on lower end earnings expectation of $11/share) – 24%;
  • 9-year dividend growth streak;
  • Net Debt/EBITDA – 3.1;
  • Market Cap – $38B.

All things added, stock price is down by ~40% compared to where it was 12 months ago. Things are not looking rosy but on the other hand it may look like a buying opportunity. Forward P/E of 12 is low compared to its 5-year average of ~15. It’s also lower compared to a rival company UPS which has forward earnings of ~15 at the moment.

FedEx would not be my primary choice now but I am planning to keep an eye on the company.

2. Caterpillar (CAT)

Next up is a company which was present in my previous watchlist.

With 2018 sales and revenues of $54.7 billion,  Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three primary segments – Construction Industries, Resource Industries and Energy & Transportation – and also provides financing and related services through its Financial Products segment.

Price of Caterpillar already increased by more than 10% since I last reviewed it but I still see it as an attractive choice.

Let’s see how the main ratios are looking at the moment:

  • Current price – $126.59;
  • P/E ratio (TTM) – 11.78;
  • Dividend Yield – 3.25%;
  • Payout ratio – 38%;
  • 26-year dividend growth streak;
  • Net Debt/EBITDA – 2.76;
  • Market Cap – $71.22B.

Fundamentals are still looking pretty solid, even though they are not that great as they looked a month ago.

As I mentioned earlier, there are risks. Caterpillar is a cyclical company and is dependent on business cycles. If economy goes to a recession, company’s results would definitely be affected. It is believed that Caterpillar’s main markets (North America Construction, China Construction, Oil & Gas) have already peaked in 2019 and earnings should slow down starting from 2020. It’s not certain what will happen in the future, though, and I think that most of the fears are already represented in the current price.

I will keep an eye on this company as well but would like the dividend yield to reach 3.5% again.

3. UnitedHealth Group (UNH)

Next company in the list is from HealthCare sector. Shortly about the company:

UnitedHealth Group Incorporated is an American for-profit managed health care company based in Minnetonka, Minnesota. It offers health care products and insurance services. It is the largest healthcare company in the world by revenue, with 2018 revenue of $226.2 billion and 115 million customers.

I was first introduced to this company by a fellow investor Engineering Dividends. It was one of his latest buys which you can read about here. Following this, another blogger, Snug Fortune, bought some stocks of United Health as well. He did a great job at analyzing the company at his blog so I recommend reading it. Therefore, I will not go too much into details.

This is how the main ratios of UNH are looking at the moment:

  • Current price – $215.26;
  • P/E ratio (TTM) – 16.16;
  • Dividend Yield – 2.01%;
  • Payout ratio – 32%;
  • 10-year dividend growth streak;
  • Net Debt/EBITDA – 1.38;
  • Market Cap – $204B.

Even though the earnings are growing and everything is looking very nicely, company’s share price lost ~20% over the last year. It turns out that this is mainly due to uncertainty how US healthcare system will look like after a few years. If so-called “Medicare for All” is implemented, it would hurt earnings of UnitedHealth Group. I am not an expert in US healthcare system and it’s never certain how politics will play out, so it’s hard to say what the future will bring.

What I can say, though, is that the company is looking ver attractive at the moment, especially when its dividend yield finally reached 2%. I would be very interested in the company if it stays at these levels when I have enough funds for my next purchase.

4. Royal Dutch Shell Plc (RDSA)

Finally, I have a company from Energy sector in my list this time.

Royal Dutch Shell PLC, commonly known as Shell, is a British-Dutch oil and gas company headquartered in the Netherlands and incorporated in the United Kingdom. It is one of the oil and gas “supermajors” and the third-largest company in the world measured by 2018 revenues (and the largest based in Europe). In the 2019 Forbes Global 2000, Shell was ranked as the ninth-largest company in the world (and the largest outside China and the United States), and the largest energy company.

Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, transport, distribution and marketing, petrochemicals, power generation and trading. It also has renewable energy activities, including biofuels, wind, energy-kite systems, and hydrogen. Shell has operations in over 70 countries, produces around 3.7 million barrels of oil equivalent per day and has 44,000 service stations worldwide.

Shell has quite an interesting structure. It has two types of shares – RDS.A and RDS.B. As it says in “Difference between” website, both shares have identical rights but share different characteristics. RDSA is associated with the original Royal Dutch Shell Company. It is Dutch listed and complies with the Dutch tax system. Also, the default currency to pay the dividends is in Euros. On the other hand, the shareholders of RDSB are associated with Shell Transport and Trading, the company’s shipping arm which is based in London, United Kingdom. As a British company, it is under the tax system of the United Kingdom.

To complicate things even further, both RDSA and RDSB shares are listed in three stock exchanges – London, Amsterdam and New York. If I decided to buy shares of Royal Dutch Shell, I would buy them from Amsterdam exchange, since it is traded in my local currency – Euro.

Energy sector is single-handedly the worst performing sector over the last 10 years. Oil price somewhat recovered from the lows of 2015-2016 but stock prices of energy companies didn’t recover that well. Increasing pressure from environmental groups and popularity of ESG (Environmental, Social and Governance) investing is making it hard for companies that earn money from fossil fuels.

Royal Dutch Shell is no exception and its stock price is hovering at around the same level as in 2008.

However, Shell seems attractive because it is showing serious signs to move towards renewables, compared to other oil and gas “supermajors”. A couple of years ago, Ben van Beurden, company’s CEO, assembled top managers and started thinking how company’s future should look like. On one hand, there is increasing pressure from people and politics against use of fossil fuel. On the other hand, oil and gas still has robust demand and doesn’t show much intention to stop in the nearest future. It provides much bigger profit margins than renewables, so company doesn’t want to quit this field prematurely.

In the end, Shell declared that it would halve CO2 emissions intensity of its products by 2050. Also, executives’ renumeration will depend on targets related to making the company greener.

These are the main ratios of the company at current price (RDS.A class shares in Amsterdam’s exchange):

  • Current price – €27.07;
  • P/E ratio (TTM) – 11.98;
  • Dividend Yield – 6.17%;
  • Payout ratio – 76%;
  • 0-year dividend growth streak;
  • Net Debt/EBITDA – 1.38;
  • Market Cap – €216B.

Currently, I have one company from Energy sector (Exxon Mobil) in my portfolio. It was one of the first companies in my portfolio when I bought it back in 2015 and its price is at exactly the same point today. I am debating if I should add another Energy company to the list. I still believe that energy companies are not dead and their dividend yield is especially attractive at the moment.

Summary

There you have it – 4 quite different companies in the list. It ended up to be quite a long post, even though I only scratched the surface of the companies. I am going to dig deeper into each one of them to get more details and compare them to competitors. Since I don’t have available funds now, I have some time to do that 🙂

What do you think about above companies? What would be your first choice? What companies are you watching at the moment? I would love to hear from you and thanks for reading!

 

Photo by Brendan Church on Unsplash

9 thoughts on “September 2019 Watchlist

  1. We don’t have any overlap with our short watch lists. Although, there is some overlap in the health care space. I’m watching WBA, PFE, and ABBV. There will be some volatility with the upcoming elections but long-term I think it’s a great place to invest.

    1. Thanks for the comment Frugal Fortunes! Out of your three mentioned stocks, I only have PFE in my portfolio. I had a consideration to add mote to it after a decline in the summer.

  2. BI, thanks for the mention. Besides UNH, I also like the other three names in your list. They are more sensitive to the conditions of the economy than UNH, but certainly represent good long-term investments. So I’m curious to see which company you are going to pick in the end.
    Good luck.
    -SF

    1. Thanks for the comment SF!
      I am not sure myself which (if any) of those companies will make it to my portfolio 🙂
      I need some more analysis to do and things may change, so we’ll see 🙂

    1. Sveikas Crash, pradėjau apie tai galvoti jau kurį laiką ir vis pasižiūriu, ką laiko didžiausi ESG fondai, bet kol kas tai nėra vienas iš pagrindinių kriterijų, kai renkuosi, į ką investuoti. Manau, kad dauguma kompanijų turės tapti ESG-friendly nori jos to ar nenori, nes jaus spaudimą iš stockholderių, bankų, šalies politikos ir panašiai.
      Kai sakai ESG reitingas, turi omeny kažkokį konkretų reitingą, priskiriamą kažkokios vertinimo komisijos/kompanijos?

      1. “Manau, kad dauguma kompanijų turės tapti ESG-friendly nori jos to ar nenori, nes jaus spaudimą iš stockholderių, bankų, šalies politikos ir panašiai.” – Va cia labai teisingai parasei. Ir pagal statistika imones su aukstu ESG geriau pasirodo. Turiu omeny butent sita “Environmental, social and governance” reitinga. Ji galima ir per Interactive Brokers paziureti. Ziurejau seminara apie ji, tai jis taps vienas svarbiausiu parametru akciju vertinime, svarbiau uz visokius P/E ir t.t.

  3. You’ve lined up some great choices, BI.
    I’ve purchased both CAT and UNH recently as you know (Thanks for the mention, by the way!).
    FDX has been on my watchlist for months, but there appears to be so much uncertainty that it’s giving me pause. I haven’t looked into RDSA, but I know it’s present in many a portfolio. Like you, I already own XOM so I haven’t looked into another stock in oil and gas space.
    Hopefully, you’ll soon get to purchase one of these stocks at a price you like.

    1. Thanks for the comment ED!
      There seems to be again some uncertainty in the economy which is pushing the prices down. I am hoping that it will stay for some time to get the stocks at cheaper price.
      Anyway, the main thing is to keep investing 🙂

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