Searching For New Lows

I’m always searching for a good bargain. Well, as long as it’s a bargain on something that I need and will actually use.

My favorite brands of polos and barefoot shoes are always on the list. It makes sense when applied to a new shirt or pair of shoes, but many fail to carry that thinking over to their stocks.

When share prices go down, it means there is a surge of shareholders that want to sell. It can be hard to buy something when the crowd doesn’t want it. For me, I can always use another high-quality dividend stock with an attractive price tag.

Locking in a good entry price means a better annualized yield and more income. However, the sky-high market valuations have made me feel like I’m looking for thrift-store bargains while walking down Fifth Avenue. Just because something is on-sale comparatively doesn’t mean it’s a price I’m willing to pay.

That might be changing.

Last week, the S&P 500 had its first losing week in 2.5 months. The markets went from pricing in another rate cut before the end of the year to pricing in rate hikes. Friday was the Index’s worst day since October.

Use It to Your Advantage

The CNN Fear and Greed Index slid right through neutral and into fear. It hasn’t been this low since the first week in April. Fear is hitting the markets, but I’m not jumping on the bandwagon. Instead, I’m looking at how I can use it to my advantage.

One of the sub-indicators of the CNN Fear and Greed Index that I like to watch is stock price strength. It measures the number of new 52-week highs versus new 52-week lows on the NYSE. A month ago, the reading was 4%, but we’re now down to just 1%. I’m ready for it to slide through zero, putting more opportunities into the market.

Most people wouldn’t see this as good news. Who really wants to see their stock hit a new 52-week low?

But I’m on the search for opportunities, so I headed over to my stock screener and searched for stocks hitting a new 52-week low after June1. The resulting list was 1,666 companies.

I then filtered for US-based companies with a dividend yield between 3-30% and was left with just 41 stocks. I use 3-30% when I want to quickly weed out anything with an unsustainably high dividend and a dividend too low for me to even consider.

I will continue to use this screener through the summer volatility and probably through the end of the year.

It’s all about perspective. The S&P 500 has been ripping through new highs for over a year. Looking for a stock at a new 52-week low is not looking for junk in a mediocre market.

Instead, I’m looking for high-quality companies that have corrected from the past year’s rich valuations.

Keep These Companies On Your Radar

Let’s jump right into a few companies I found that I want to keep an eye on.

Tractor Supply Company (TSCO) hit a new 52-week low on June 3 at $28.36. Shares are down 40.8% year to date resulting in a dividend above 3% for the first time in years.

For the first quarter, comparable store sales grew by just 0.5%, below the expected 2%. The main sales drag is its pet business, which makes up 24% of sales. I’ll admit this isn’t a section of the market that I know a lot about.

Apparently, the US pet market has shifted to a slower pace of growth. The pets from the COVID adoption boom are aging out, and the financial costs of caring for a pet are creating a new normal for this market.

TSCO recently decided to double down on the pet business by acquiring VIP Petcare. This is the largest provider of mobile veterinary care in the US.

Analysts are skeptical if this is a smart long-term idea, and question whether that money could have been better spent elsewhere. Meanwhile, the core farm and ranch business should be fine.

I’m adding this retailer to my watchlist and will take a closer look at the trends in animal care—both pets and livestock. A little more skepticism could give us a 3.5% yield.

AT&T (T) hit a new 52-week low on June 4 at $22.33. Shares are down 18.2% over the past year, raising its annualized yield to 4.9%. Shares had a decent run supported by debt reduction and solid earnings last year, but now uncertainty looms.

The SpaceX IPO has reminded analysts that Starlink is a very real threat to the telecom giants. Starlink has already disrupted the ISP market in rural areas where the major carriers have been unreliable for years. With Starlink pricing on par with legacy broadband, it may affect more users than originally thought.

And AT&T isn’t the only company on the list for this reason.

Comcast Corp. (CMCSA) hit a new 52-week low on June 4 at $23.13. Shares are down 25% over the last year, boosting its annualized yield to 5.7%. After cord-cutting gutted the company’s TV-business, broadband has been Comcast’s high-margin business that retained a monopoly in many markets.

The stock has been hit extra hard as the company committed more than $6.7 billion to develop a Universal theme park in Europe while Starlink is taking pieces of its core business.

Of the two, I will continue to keep an eye on AT&T. My Essential Income readers sold their AT&T position at the end of last year for a tidy profit of 82%. In that sell alert, I noted “If shares fall like I think they will, we’ll get another chance to collect a great yield from AT&T.”

This just might be that opportunity. I need to dig deeper into the Starlink affect. If AT&T’s yield hits 5%, I would probably add it back into my portfolio.

For more income, now and in the future,

Kelly Green