WoW!! March was definitely the most volatile market that I have ever experienced as an investor! What does this mean for my stock picks for April 2020?
I am so glad that I stuck to my crisis investment strategy and that I focused on accumulating high quality companies. Those companies have felt very pricy for a very long time and finally I got an opportunity to increase my position size in JNJ and UNA. My March Watchlist was of very good help for that.
I expect more market turmoil going forward and I wouldn’t be surprised if we will experience a so called “bull-trap”. Hence why this month’s watchlist will be off utmost importance for me again.
Having said that, I do feel like a kid in the candy store. There are already so many quality stocks at a fair price that it makes it harder to chose in the upcoming month. Especially if stocks would test the mid-March lows again.
Generally speaking, the March Watchlist still stands for me. The only stock that I am currently not considering from that watchlist is Disney. I have enough of a position in it and I want to see their quarterly earnings first due to the increased impact of the global lockdown.
Without further ado and to provide some different stock ideas for this month, hereby my 3 stock picks for April 2020.
Ahold-Delhaize is an iconic retailer with its origin and headquarter in the Netherlands (since 1887). Actually, that’s not a totally true statement, because it’s a result of a 2016 merger between Ahold (NL) and Delhaize (BE). Hence it also has a strong history from the Belgium part with Delhaize.
Just quickly for the non-Dutch and Belgium visitors of this blog: Ahold-Delhaize can be considered as the Dutch-Belgium Walmart. It does however generate more than half of it sales from the United States via brands like Food Lion and Giant Food Stores. Besides that it also owns the Dutch equivalent of Amazon: Bol.com.
It’s definitely a nice company to do sometime a deeper dive on via an extended stock-analysis. But let’s do the quick litmus test to justify why it belongs on this watchlist.
Ahold-Delhaize ($AMS:AD) pays a dividend of 0.76 Euro this year. It just recently raised its dividend from 0.70 Euro which means a pretty good increase of 8.6%.
With the current share price Ahold yields 3.59%. The payout ratio is 44.45% based on 2019 earnings. This is nice below the 60% that I’m typically looking for.
Ahold has a P/E of 12.45 which is quite low in my opinion. The stock has been holding up very well during the recent bear market and I consider adding to my position everytime it dips under 20 Euro.
2️⃣ Pepsi Co.
Another company that I am really looking forward for to further accumulate is Pepsi Co ($PEP). It’s a great global business that is well diversified. It doesn’t only sell coke, because it also has a giant snack business and in total it has 22 different billion dollar brands.
PEP is a typical consumer staple which ought to do well during these times. We all like a snack when watching a movie from home. Thus this is an ideal stock to own for the current “stay-at-home economy“.
PEP pays a quarterly dividend of $0.955 and the stock currently yields 3.16%. The payout percentage is 73.4%. This is higher than I usually look for, although with PEP I’m OK with that due to the stability of their business.
The company paid this dividend now for the fourth quarter in a row, so we can expect a dividend announcement anytime soon (28 April). I expect a small increase and rather in line with last year’s increase of 3%, because the company will need to let earnings growth outpace dividend growth to restore the cushion they once had. I think that this crisis gives them an excellent excuse to do just that.
PEP has a P/E of 23, which is a bit too pricey for me. I find PepsiCo still a bit overvalued, but I would consider adding some to my position at a P/E of 20, thus at $104 per share.
I still wouldn’t accumulate more than a 25% portfolio size at that price. To go beyond that I would need to have a wider margin-of-safety. In practice this means a share price in the eighties, which has not been seen since 2014.
3️⃣ Medtronic Plc.
Last week I did a thorough analysis on Medtronic ($MDT). I really think that this is a high quality company for which you very often pay a premium price. I will not provide further background into the company here. You can all find that in the blog post.
Medtronic currently pays a quarterly dividend of $0.54 per quarter ($2.16 annualized) and yields 2.54%. The payout ratio is 53.8% which is nice below 60%.
MDT has a P/E of 21.69, which is also still a bit too pricey for me. However, as per in my detailed stock analysis, I believe that the fair value of Medtronics is $74.00.
I aim to further accumulate and grow my position size when the price hits $74.00 again. I will limit it up to 25% of my envisioned position size and the remaining I aim to accumulate if the price drops quite a bit further. I would look for a margin-of-safety of 15% ($62.90) to become really aggressive on the stock.
Both 3 companies are high quality companies and are officially my 3 stock picks for April 2020. Ahold-Delhaize currently presents the best value of those 3, so it’s most likely that I will increase my position in that stock first in the upcoming month.
PepsiCo and Medtronic would still require a 10% to 15% decline. I think this is possible in the upcoming days or even weeks and I would be a very happy person, because I still consider those positions in my portfolio very small. Actually a bit too small to my liking.
Other than that, I will also spend significant time this month to analyse the first quarterly reports. As you noticed, both 3 stocks on this watchlist are very defensive under current circumstances. However, I would like to start considering companies from other sectors as well.
For instance, Nike and Starbucks also have a spot in my dream-portfolio, but I really want to see the financial impact of COVID-19 first. Both typically depend heavily on foot-traffic and I am afraid that their earnings will look very bad. That would even be OK for me, because that’s understandable during a lockdown, but I really need to get a feeling first for how long that impact will be felt by those companies.
Having said that, I wish you lot’s of wisdom and financial luck in the upcoming month!
If it will come any close to March, then I’m sure we’ll have a lot of adrenaline flowing through our bodies.
If you liked reading this post then please hit the like button. I would be very grateful 🙏.
Feel also free to ask any question via the comment section.
— European Dividend Growth Investor
DISCLOSURE: I own Ahold-Delhaize, PepsiCo and Medtronic Plc. I intend to add more shares in April if they hit the target prices listed in this article.
DISCLAIMER: I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.
I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.