Goodfellow LLC Growth & Income Stock Portfolio for 2016

originally published Dec. 31, 2015

 

Dear Investors,

Herein please find a diversified portfolio of growth & income stocks for 2016 from which you can fine-tune your investment portfolios. These are all growing, dividend-paying, profitable companies.

My stock selection style combines both fundamental and technical analysis, in an effort to minimize the risk associated with stock investing. I screen stocks for strong future earnings per share growth, low price/earnings ratios (PEs), low debt levels, and dividends. I then examine the technical charts, seeking to buy when the stocks are poised to rise in the near-term, to accommodate both short-term and long-term investors.

I always use the most recent Wall Street consensus earnings per share (EPS) estimates when referring to EPS growth projections.

Most of this year’s stocks fell in 2015, then stabilized, and appear ready to rise again.

I don’t recommend stocks with losses, ongoing bad news, poor balance sheets, scandals, bearish charts, or significant M&A activity. If the stock’s on this list, it’s got great earnings growth prospects, a comparatively low PE, a dividend over 1.5%, and a technical chart indicating that investors are likely to achieve good capital gains in 2016.

Eleven of the thirteen Goodfellow LLC model equity portfolios, from 2011 through 2015, outperformed the Dow Jones Industrial Average and/or the S&P 500.

There are ten stocks in this year’s growth & income portfolio. Their dividend yields range between 1.7%-5.1%.

The only stocks on this list with fiscal year-ends other than December 31st are GameStop (Jan.) and Legg Mason (March).

Please review How to Structure a Stock Portfolio before proceeding with purchasing more stocks.

Best wishes for a profitable 2016!

 

Crista Huff

President

Goodfellow LLC

 

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The Boeing Company (BA) is an aerospace company. BA is an undervalued growth & income stock.

• After a slow year in 2015, with a 4% drop in EPS, Boeing is expected to grow EPS 14.4% in 2016.

• The 2016 PE is 15.3, in the middle of its normal annual PE range.

• The dividend was increased in December, for the fifth consecutive year, with a current yield of 3.0%.

• Boeing repurchased $6.75 billion of stock in 2015; followed by plans to repurchase $14 billion of stock over 2-3 years starting January 2016.

BA spent much of 2015 trading between $138-$149. When the stock surpasses $149, there will be additional upside resistance around $155.

 

Federated Investors (FII) is a global investment management company. As an industry leader in the management of money market funds, Federated is uniquely positioned to increase its net income from asset management fees, as interest rates rise. In addition, as investors flee from heightened volatility in junk bond mutual funds, they will likely park their money in money market funds, bringing an additional surge of fee income to Federated Investors. FII is an undervalued growth stock, and one of the best possible financial stocks to own, to capitalize on rising interest rates.

• FII is slated for 24% EPS growth in 2016 (December year-end).

• The dividend yield is 3.5%.

• The 2016 PE is 14.4, well within its normal annual PE range.

• FII traded at a PE of 20 or higher in seven of the last ten years.

The stock is likely to trade up to $32 shortly, rest a short while, then rise to about $35.

 

GameStop Corp. (GME) owns and operates 6,200 video game & electronics stores in the U.S., Canada, Australia and Europe. The company acquired Geeknet in June 2015. GME is a very undervalued growth & income stock with a strong balance sheet.

• The 2017 consensus EPS estimate projects growth of 11.8% (January year-end).

• The 2017 PE is 6.7, at the bottom of its normal annual range of 7-15+.

• GameStop has the highest dividend yield in this year’s Growth & Income Portfolio, at 5.1%.

• There was $340 million remaining in the stock repurchase authorization as of 08-30-15.

The stock price fell in 2015, largely due to unfounded investor worries over retail stocks, triggered by profit problems at Wal-Mart (WMT) and Macy*s (M). Now that tax-loss selling season is over, the share price has stabilized. I expect a significant price rebound for GME in 2016, starting with a climb toward upside price resistance at $37.

 

General Motors Company (GM) is an American manufacturer of cars, trucks, and automobile parts. GM is a very undervalued growth & income stock.

• After huge EPS growth of about 57% in 2015, GM is expected to grow EPS 12.7% in 2016.

• The 2016 PE is very low in comparison to the EPS growth rate, at 6.3.

• GM has a 4.2% dividend yield.

• As of September 30^th, GM was the most widely-owned stock in hedge funds, held in a whopping 88 hedge fund portfolios.

• As of October 2015, GM had $2.1 billion remaining in its share repurchase authorization.

• Caveat: General Motors has higher levels of long-term debt than I prefer.

GM shares have upside resistance at $38, and then again near $42. I would expect the stock to reach $38 within a few weeks, pause there for a while, and then continue climbing.

 

Legg Mason Inc. (LM) is a U.S.-based global investment management company, operating 16 subsidiaries, including Brandywine Global, ClearBridge Advisors, and Western Asset Management. Western Asset Management’s global fixed income business is successfully taking business away from PIMCO, a prominent institutional competitor. LM is a very undervalued growth stock with a strong balance sheet.

• Analysts expect the company’s earnings per share (EPS) to grow aggressively by 40% and 16.1% in 2016 & ’17 (March year-end).

• The 2016 PE is 11.9, well below both the EPS growth rate and the normal annual PE range.

• The PE has reached 19 or higher in each of the last six years; indicating lots of room for the stock to rise, before being deemed “overvalued”.

• The company repurchased 28% of its shares in the last four fiscal years, and is expected to repurchase another 4% in 2016, and again in 2017.

• The dividend yield is 2.0%.

As the share price recovers from its 2015 drop, there will be upside resistance at $46, and again at $49. I expect LM to begin its recovery this winter.

 

M.D.C. Holdings, Inc. (MDC) is a U.S. homebuilder. MDC is an undervalued growth stock.

• The company had moderate earnings growth of about 10% in 2015, which is expected to be followed by a whopping 55% EPS growth in 2016. The 2015 number ratcheted downward all year, while the 2016 number kept increasing.

• The 2016 PE is very low in comparison to the EPS growth, at 11.6. However, PEs on homebuilder stocks don’t usually run really high, like you might see in packaged foods or technology stocks.

• MDC has a 3.9% dividend yield.

Housing stocks can be volatile. Still, there’s no doubt that economic reports keep pointing to rising home prices and a shortage of inventory; yet housing stocks have been slow to reflect that good news. I expect MDC to rise to $28, pause for a while, then retrace its summertime highs around $30.50.

 

Morgan Stanley (MS) is an investment banking and retail brokerage company. MS is a very undervalued growth stock.

• EPS are expected to rise 29% in 2016.

• The 2016 PE is 10.1. The PE reached 16.6 or higher in each recent year, 2013-2015.

• The dividend yield is 1.8%.

• In the first quarter of 2015, Morgan Stanley announced a new $3.1 billion repurchase plan, and increased its dividend.

The stock has been trading between $31-$35.50 since August. When the stock breaks past $35.50, there will be additional upside resistance at $40.

 

Nucor Corp. (NUE) is a manufacturer of iron and steel products. NUE is an undervalued growth stock.

Steel prices have been harmed by the downturn in energy prices, and the manufacturing recession. As such, Nucor’s 2015 EPS fell about 55%. Investors will be bargain-hunting among energy, chemical, and metals stocks with good earnings prospects for 2016. Professional investors will also need to own stocks in these sectors to round out their portfolio diversification.

• NUE is expect to see EPS growth of 44% in 2016.

• The 2016 PE is 17.8.

• The dividend yield is hefty at 3.7%.

The worst is over for Nucor’s share price. Watch for NUE to rise to $43 very soon, pause briefly, then climb to additional upside resistance at $46, and again at $48.

 

Robert Half International Inc. (RHI) is a global staffing & consulting company. RHI is an undervalued growth stock with a strong balance sheet.

• Wall Street expects Robert Half’s EPS to grow another 15.3% in 2016.

• The 2016 PE is 15.3; it’s traded between 17-22 and higher, in each of the last five years.

• RHI has a 1.7% dividend yield.

• On October 29th, the company authorized another 10 million shares for repurchase; with 8 million shares remaining in the previous repurchase authorization.

• The company has virtually no long-term debt.

The share price has begun to climb, after its drop in 2015. There’s upside resistance at $53, and then again at $58.

 

Whirlpool Corp. (WHR) is a global appliance manufacturer, and a beneficiary of the strong U.S. housing market. WHR is a very undervalued growth stock.

• After slow EPS growth of about 6.6% in 2015, Wall Street expects Whirlpool to grow EPS 18.5% in 2016.

• The 2016 PE is 10.2, very low within its normal annual PE range of 9-16+.

• The dividend yield is 2.4%.

WHR has traded in a wide range, between $142-$166, since September. Once the stock rises past $166, there’s additional upside resistance around $185.

 

Crista Huff

President

Goodfellow LLC

 

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