5 Stocks on Sale

Whether it's policy squabbles in Congress, fear over the debt limit, or other pesky short-term worries, the market has been under pressure lately. That means it's a good time to scan holdings and watch lists to see if any of those stocks that were too expensive a few months ago have made it to buy territory. Here are five from my list.

Company

Recent Price

52-Week High

Markdown

AT&T (NYSE: T  )

$34.15

$39.00

12.4%

Southern Company (NYSE: SO  )

$41.57

$48.74

14.7%

McCormick (NYSE: MKC  )

$66.27

$75.26

11.9%

Central Fund of Canada (NYSEMKT: CEF  )

$14.46

$23.68

39.8%

Realty Income (NYSE: O  )

$40.36

$55.48

27.2%

Source: Yahoo! Finance; author's calculations.

AT&T sports a 5.3% dividend yield, and if its long track record holds, it's due for a dividend raise soon. For its second quarter, AT&T reported increases in earnings, revenue, broadband connections, and postpaid wireless subscribers. It does have a double dose of interest rate risk: If rates go up, bonds would become more attractive and put pressure on the stock price, and the company's debt service costs would rise as maturing debt was refinanced at higher rates. There’s also tough competition from inside and outside the telecom space. I think those risks are fully priced in and AT&T is a solid contender for income-oriented portfolios.

Southern is one of the nation's largest electric utilities. Its 4.9% dividend yield easily tops most bonds and has good prospects for slow, steady growth. That boring, slow growth has been a pretty good deal for investors: The company’s stock has outperformed the S&P 500 index over the past five, ten and thirty year stretches. As with AT&T, rising rates would put pressure on the stock price and increase debt service as low-rate paper needs to be refinanced. Again, I think those risks are in the price.

Looking for market dominance? Quick, name the No. 2 spice company -- I don't know it, either. In addition to owning the spice and flavor market, McCormick has an aggressive cost-control program, has a balanced commercial/retail revenue stream, has been expanding in markets outside the U.S., and has a long string of annual dividend increases. I recently added to my McCormick holdings.

The first three stocks are all dividend or dividend growth stories, while Central Fund of Canada offers precious-metals exposure. The business model is pretty simple: The fund holds gold and silver. Current holdings are split 56% to 43% between gold and silver, with less than 1% in cash. Precious metals haven't been the best market lately, but a little inflation protection may come in handy down the road. There's even a tiny dividend. The company has been paying a penny per share each year since 1996. As of Thursday's close, the fund was priced at nearly a 7.5% discount to its net asset value.

The last markdown is one from my watch list  Realty Income is a real-estate invest trust, or REIT. REITs must pay out almost all their earnings to maintain a tax advantage, thus they tend to have high dividend yields. Realty Income is no exception, with a 5.5% yield. It pays dividends monthly, rather than the more common quarterly period, which is attractive to many income investors. It owns commercial properties across the U.S. and Puerto Rico. According to the company's dividend website, payouts have increased for 64 consecutive quarters, and annual payout increases date back to the company's listing in 1994.

To be clear, I have no idea whether bigger markdowns are coming or whether we're near bottoms for these prices. What I do know is that many quality companies that were carrying expensive price tags earlier this year have come down to more reasonable prices.

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  • Report this Comment On October 11, 2013, at 10:28 AM, adamwins76 wrote:

    AT&T is not a buy. It's fully priced with no catalyst for future growth and an increasing amount of debt on the books. That dividend isn't safe either. I rate it a SELL.

  • Report this Comment On October 11, 2013, at 2:45 PM, marcopezzi wrote:

    so...if adamwins76 say at&t is a sell we have to sell..... NOOOOOOOOOOOOOOOOOOOOOT

    let's be serious my friend just because you are short...

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