As 2013 draws to a close, I want to provide my top stock picks for 2014. After the significant rally the market has experienced in 2013, it is harder to find compelling valuations in the market but these are some picks that currently stand out to me. I currently have my investments spread out over two accounts. The main account is a dividend growth investing account and my secondary account ('play account') is a bit more open to leave me some freedom to chase non-DGI picks (although it is free to also pursue additional DGI positions). As such, I will provide both DGI and non-DGI picks.
Dividend Growth Picks
Aflac (AFL) - provides supplemental health and life insurance products. The weak yen (vs. the dollar) has been a headwind throughout 2013 as the bulk of AFL's revenues and profits come from Japan. Despite this headwind, the underlying business remains very strong and AFL is near 52 week highs as we close out 2013. In late October, AFL increased its dividend 5.7%. This was the 31st consecutive year with a dividend increase. The yen may continue to be a headwind but AFL will continue to perform well. Could be a big breakout winner if the yen stops falling (BOJ/Abe will likely continue to play a key role here so it is unlikely to rise appreciably during 2014). Either way, valuation remains reasonable for such a great company.
Deere (DE) - manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. Deere is perhaps best known for its green tractors. 2013 marked a year of falling agriculture prices which has created concerns regarding future farmer spending on DE equipment. DE increased its dividend 10.9% in Q1 2013 which marked the 10th consecutive year with a dividend increase. As the global economy continues to pick up steam heading into 2014, expect the outlook for DE's end markets to improve and, with it, DE's stock.
Target (TGT) - operates general merchandise stores in the United States and is expanding into Canada. Obviously, Target is currently dealing with the fallout of the recent credit card hack it suffered. There continues to be headline risk here and the latest is that encrypted PIN numbers were also stolen. In addition, TGT's expansion into Canada has been more difficult than anticipated. In Q2 2013, TGT increased its dividend 19.4%, increasing its dividend streak to 46 years. As TGT moves past the credit card hack and its Canadian expansion picks up steam, look for this well run retailer to have a better 2014.
Cisco Systems (CSCO) - designs, manufactures, and sells Internet protocol (IP) and other products related to the communications and information technology industry worldwide. CSCO's recent stock weakness has been in large part due to reduced revenue and profit guidance from CSCO. In March, CSCO increased its dividend 21.4%. This was the 3rd increase after CSCO initiated a dividend in 2011. While some DGI investors look for at least 5 years (or more) of dividend growth before considering a position, CSCO's management has been clear about its intention to focus on returning cash to shareholders. I like this play because of CSCO's strong balance sheet, focus on returning cash to shareholders and current valuation. Feels a lot like MSFT heading into 2013.
Chevron (CVX) - one of the oil majors, this dividend champion appears to be attractively valued vs. its competitors, despite a bit of a pop in the past two weeks. In the 2nd Quarter, CVX increased its dividend 11.1% which was is 26th consecutive year with an increase. An improving economy will likely lead to higher oil prices and I like CVX's valuation in comparison to XOM & COP.
Non-Dividend Growth Picks
Ford (F) - offers vehicles primarily under the Ford and Lincoln brand names. Ford stock recently suffered a setback as a result of lower than expected guidance for 2014. In addition, there has been concern over CEO Alan Mullaly leaving F, either by retirement or to become CEO of MSFT. I think the market has over reacted to the guidance as Ford invests in its future. As we move through 2014, look for the market to realize the potential benefits of Ford's investments and that Mulally has more than sufficiently prepared Ford for his eventual departure.
BP (BP) - another one of the oil majors, BP continues to have potential liabilities from the Gulf spill hanging over the stock. BP does close out 2013 near its 52 week highs. BP announced in October that it was increasing its dividend 5.5%, its 3rd increase after reinstating the dividend back in 2011 after the oil spill. BP continues to trade at lower valuations than the other oil majors and I think it will continue to close the valuation gap as uncertainties regarding the liabilities from the Gulf spill continue to become clearer.
J.C. Penney (JCP) - I want to stress that this is a very speculative play. JCP's business has deteriorated significantly over the past couple years and there is a very real chance the company could be forced to seek bankruptcy protection. As such, an investment in JCP can very easily lead to significant or total loss. The reason I list it is that I feel the brand still has some value. If management can successfully right the ship and begin to improve sales and reduce losses, this one could be a huge winner. The gambler in me wants to throw a small piece of my 'play account' at it and see what happens but for now I watch and wait. While its on my 'Top Picks' list, it is not the type of invesmtent I want to focus on so I will likely pass.
What are you looking at for 2014?
Disclosure - I am long AFL, DE, CSCO, and F calls.