Hershey stock has come down 15% since the Christmastime period when I wrote about it being overvalued. The price currently sits at $93 per share (down from the January high of $111). I would classify the current price as high end of fair value. Many people will look to the 2.3% dividend yield and conclude that it is too low to meet their needs.
I certainly get that. If you have a plan to live off dividend income within the next ten years, you are going to receive much higher checks if you buy Chevron at $105 per share, lock in a starting yield of 4%, and reinvest those dividend payments until the … Read the rest of this article!
Two factors right now are interacting to provide a distorted view of valuations for investors that make decisions based on historical P/E analyses of large U.S. stocks. On one hand, you have the growing trend of international profits contributing to the overall earnings of large U.S. multinationals. The average S&P 500 company currently generates 42% of its profits overseas. That matters because of our second factor: In the past twelve months, the United States dollar has gained almost 25% in value compared to the global basket of currencies index.
Normally, overseas profits do not require a separate distinction unless you are trying to analyze the amount of cash available for buybacks and dividends … Read the rest of this article!
Lately, I’ve been doing some back-testing to try and find good answers to the following: (1) What if someone invested a lump sum in 2007 right before the financial crisis, and (2) what if that investor paid an unusually high premium for the stock even during a period of high valuations? It’s been my way of challenging the Benjamin Graham thesis that investors should focus on getting the price above all else. I wanted to test scenarios to see what happens if treated quality as your primary concern, and regarded price as a secondary matter (you can never truly get past “price matters” because paying something like 50x earnings for Coca-Cola in 1998 … Read the rest of this article!