• Luis G. ha respondido al debate Ted SeeksQuality en el foro Estrategia hace 7 meses, 3 semanas

    «HRL may be the most overvalued stock in my portfolio at this time (having sold MKC).

    It trades at 23.8x FY19 estimates, which is another way of saying that each dollar I have invested is expected to earn just 4.2% over the coming year. This is towards the upper end of the valuation range from the last three years, Morningstar sees it as 21% overvalued. The dividend yield is under 2%. Expected growth is modest, in the middle single digits. There is perhaps the potential for a 10% forward Total Return, but that would be the optimistic projection at this point.

    HRL has a strong history of stable and growing cash flow. The payout ratio is a modest ~40% and (given the quality of the books) should be very safe. It seems probable that the calculated «fair value» will catch up to the current fair value within 3-4 years. That said, there is good reason to anticipate weak total returns over that time frame, as the low dividend is a poor reward if the share price stagnates.

    It is tempting to sell the shares and wait for a lower price, however there is no guarantee that we will actually see that materialize and no certainty that I would pull the trigger on a buy if it did. (Even if willing to buy at that price, I might not be ready to buy at that time.) So I refuse to trade based on that rationale. If I’m going to sell, then I need to buy something else immediately rather than speculating about future price movements.

    And many of the Consumer Staples are trading at similarly inflated valuations. DEO, NSRGY, PG, and PEP are all trading at similar earnings multiples, fully valued or overvalued. I could add to GIS, but that would be a step down in quality. I could add to SYY, but that is arguably similarly overvalued (and a bit more sensitive than HRL).

    Moreover, the shares are in a taxable account with 30%+ capital gains. I am reluctant to recognize the income without good reason to do so.Thus while I will not be adding at this level ($37 would be a better price), neither will I be selling these shares. At 2.4% of my portfolio, I can afford a period of underperformance with a company that is executing well with a very safe dividend. Maybe it will surprise me and deliver better? Or maybe it will fall back a bit, in which case I can more easily add to what I already hold than initiate a new position. (Psychological, perhaps, but nonetheless true.) If I want to bolster my portfolio income by adding to UL or KMB? I imagine I can find a way to do that without needing to sell HRL.

    Finally, note that all of the above is subject to change if the price rises substantially further. At $47 (unlikely, but you never know…) I would be out.»