How to Find Risks in Your Stock Portfolio

3 Dividend Stocks to Buy in July

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The Best Stocks to Buy Right Now and How to Find them

Hey Bow Tie Nation, Joseph Hogue here FINALLY updating our 2020 Dividend Stock portfolio. There was so much going on, I missed our June update but I wanted to take this opportunity to do a stocks to buy in July video and…AND share a very important investing idea with you.

Nation, after a 40% rebound off the March lows it has become very difficult finding good stock picks for the portfolio. Almost nothing looks cheap and the stocks that are still off their highs are that way for a reason.

So I wanted to use this video to show you how I look at a portfolio to see which stocks to buy, where the gaps and risks might be in a portfolio and what stocks to watch to decrease that risk.

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2020 Dividend Portfolio Challenge

We’ll first do a quick recap of the 2020 dividend portfolio, see where we’re at with the dividend stocks in the portfolio. Then I’ll show you how to find the gaps and risks in your portfolio by using our 2020 portfolio as an example and reveal the three stocks I’m buying in July to fill in those gaps.

I’ll be putting these stocks in the portfolio on M1 Finance, and I love the platform for that automatic investment rebalancing function. I can just put in what percentage of my money I want in each stock or fund and the website is going to automatically invest any new money across the group.

M1 is totally free to use and offers some great savings rates and features. I’ll leave a link in the video description below so make sure you check it out.

Put your investments on auto-pilot and never pay a fee to buy or sell stocks with M1 Finance – learn more here.

Here’s are dividend portfolio as of last week and while it says a 20% return, that’s actually over the last year so we’re actually sitting on about a 1% loss year-to-date which is still better than the 6% loss on the stock market so far in 2020.

Here’s the portfolio itself. We have six funds and 13 individual stocks. Some of the standouts include the Vanguard real estate trust, ticker VNQ, and I love this fund as an easy way to get broad exposure in real estate. We invested in shares of AIG in May and are already up 31% on the investment. This was one of the top picks by analysts at the time and a solid 4.3% dividend yield.

2020 Dividend Portfolio Challenge
2020 Dividend Portfolio Challenge

The investments in Global Medical REIT, ticker GMRE, and the Vanguard Short-Term Bond Fund, ticker BSV, have really helped support the portfolio when the rest of the market crashed.

Unfortunately we’ve also got some real dogs here. We put on that investment in Carnival, ticker CCL, in January at exactly the wrong time. I still like Carnival as a very long-term investment but it’s going to take time to see any kind of certainty on it.

WestRock, ticker WRK, and Telefonica, ticker TEF, were also part of those January additions to the portfolio and still sitting dragging down the rest of the returns.

How to Pick Stocks to Buy

This month, what I want to do is share my thought process for looking at a portfolio and deciding what to add. Once you’ve already got a portfolio of a few funds and a handful of individual stocks, rather than just blindly making new stock picks, it becomes much more important that you look at your portfolio as a whole and find the gaps or risks.

It’s only in looking at it this way that you’re going to be able to avoid the worst of a market crash if all your stocks are concentrated in one or a few sectors of the economy.

I’m going to be using our Portfolio Spreadsheet Tracker to find those gaps. I’ll leave a link to download the spreadsheet below but even if you don’t have it, you can still do what we’ll be looking at with your portfolio.

Download this Stock Portfolio Tracker Now! Special Launch Discount Today!

The first thing we’ll do is put all our current stocks and funds in the spreadsheet and load the stock data from the internet. This is going to bring in the asset class, sector and industry for each stock. That way we can get an idea of how much we have in each already in the portfolio.

How to Track Your Stocks in Excel
How to Track Your Stocks in Excel

Once that’s done, we can click to the Overview tab and it shows us how much of the portfolio is in stocks, bonds and real estate as well as some of these other assets if you have them.

Now if you don’t have the spreadsheet, basically you’re just finding the dollar amount you have invested in these three asset classes. So add up the value of all your bonds and bond funds, stocks and stock funds and real estate.

Stock Portfolio Spreadsheet for Dividend Stocks
Stock Portfolio Spreadsheet for Dividend Stocks

Why this is important is because those broad asset classes, they react differently to the economy and do different things for your wealth. Stocks are higher growth but can be like a roller coaster sometimes. Bonds are going to be slower growth but provide the ultimate safety like that bond fund did for our portfolio in March. Bonds and real estate also provide for some nice cash flow above what you usually get with dividend stocks.

And here our asset breakdown says we have 76% in stocks, 14% in bonds and 10% of the portfolio in real estate funds. That’s probably a little low in real estate and bonds if I’m thinking stocks look expensive here so I might want to add to a position in one of those two asset classes. Maybe buy another real estate or bond fund to give me a little more protection against another market crash.

Don’t neglect this asset-level view of your portfolio! I know since the March low, everyone has become a stock-picking genius making double-digit returns on stocks like Nio and Nikola but that’s not going to last forever. You need that holistic portfolio with some bonds and real estate to get you away from the risks in stocks.

Compare Your Portfolio by Sector for Stocks to Buy

One last step here and now we want to look at the portfolio for what sectors we’re investing in and maybe what we’re neglecting. With the big move in tech this year, I know a lot of investors are almost exclusively invested in the sector. That’s great when the market gods are shining down but again, what goes up can also come crashing down just as fast.

So part of the spreadsheet is that it finds the sector for each of your stocks, adds up the percentage you have in that sector and shows it here on the right along with these colored bars. It also looks at what percentage that sector makes up the S&P 500 market index to give you an idea of whether you’re over- or underweight the sector compared to the market.

How to Find Risks in Your Stock Portfolio
How to Find Risks in Your Stock Portfolio

And for our dividend portfolio, we can see it’s underweight communication services, financials, healthcare, industrials and tech stocks. We’ve got just 4% of the portfolio in healthcare through Gilead Sciences, versus a 15% weight in the overall market. In financials, we’ve got 6% of the portfolio in AIG, but that’s still quite a bit less than how much stocks of financial companies make up the S&P 500.

Track your entire portfolio, see the gaps in your investments and compare two stocks instantly with my Portfolio Tracker spreadsheet.

Download this Portfolio Tracker and Stock Comparison Tool! [Use this Coupon Code for 57% Off]

I like both healthcare and financials here. If you look at the PE ratios for each sector and you compare each sector against its 10-year average price-to-earnings ratio, healthcare and financials are two of the least inexpensive groups right now. Compared to sectors like tech stocks trading 58% above their long-term PE ratios, healthcare looks like a steal at a premium of just 12% and even the 24% premium on financials isn’t too bad.

Besides helping you find those gaps and risks in your portfolio, this kind of a process just makes it so much easier to pick stocks to buy. Instead of trying to find stocks to watch from the entire market, the thousands of stocks traded on the exchanges, you can instantly narrow your search down to a few hundred within a sector.

3 Stocks I'm Buying in July

So using this, I found three stocks to buy in July, three I’ll be adding to our 2020 dividend stock portfolio.

First is $82 billion pharmacy giant CVS Health, ticker CVS, for that increased exposure to healthcare and its 3.1% dividend yield.

Now most healthcare stocks paying a 3% or higher yield are going to be drug makers and since we already have Gilead Sciences and I’m talking about AbbVie in another video this week, I wanted to add CVS here.

The company has an unrivaled advantage in healthcare delivery, retail and insurance with almost 10,000 retail stores. They’ve ramped up to a testing capacity of 1.5 million through a thousand COVID drive-thru sites and could be looking at a huge opportunity in vaccine delivery when it’s developed.

CVS booked 8.3% sales growth last quarter and 18% earnings growth which is amazing considering the rest of the market reported an earnings decline of around 5% in Q1. Management said about 5.5% of that was a benefit on COVID testing and activity so this is going to be a great play whether we see a rise in those cases or not.

Earnings are expected slightly lower to $7.07 a share over the next year but management has a history of beating expectations and this one is trading at just 8.6-times earnings.

Analysts price targets range from $66 on the low side to $94 per share over the next year which would be almost a 50% return on top of the dividend.

Put your investments on auto-pilot and never pay a fee to buy or sell stocks with M1 Finance – learn more here.

For our financials stock, I’m buying Regions Financial and its 5.3% dividend yield.

The Fed released its recent stress tests last week and came down hard on the banks. What happened is the central bank said, in the event that we get a really bad recession from all this, banks don’t have as much cash as it would like so it limited the cash payouts they could make through share buybacks and dividends.

Of course, that hit the bank stocks hard because investors were worried who would cut their dividends, especially for some of the high yield payers like Wells Fargo and Regions.

Regions is primarily a southwest regional bank where a lot of the states didn’t close down to the extent we saw across the country. They’re seeing an increase in COVID cases lately but the bank reports that 97% of its branches remain open for drive-thru or appointment.

Now if you look at bank earnings over the last quarter, they were absolutely horrible. Regions missed expectations by $0.09 to report just $0.14 per share, less than half the earnings it reported in last year’s first quarter.

What happened is they shifted $373 million of earnings to the loan loss provision, kind of a separate savings account it sets aside just in case a recession causes more loan defaults. This $373 million shift was an increase of 310% from the prior year so a huge move to shore up the bank’s finances and without this, earnings per share would have been more than triple to over $0.40 a share.

Now we did see an increase in Net Charge Offs reported in the first quarter, that’s the banks loans that don’t get paid back. These charge-offs amounted to $123 million in the quarter from $96 million in Q4 of last year. And while business loans ticked up, it’s still less that 0.6% of all loans charged off.

In fact, I think the banks are shifting more than they need to those loan loss provisions so if the economy rebounds faster or the recession isn’t as bad, we could see much higher than expected earnings over the next year.

Earnings of $1.29 over the last year means the shares are trading for 8.3-times on a PE basis and just 70% of book value. Earnings are expected lower over the next four quarters but this is still a solid dividend stocks trading deep in value territory.

Analyst targets range from $9 per share on the low end to $16 each over the next year so a pretty big spread but I like it for a rebound to at least $12 a share on top of that dividend.

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I’m also adding to our position in Global Medical REIT, ticker GMRE, and its 7.3% dividend yield.

This is going to not only increase our healthcare exposure but also the amount we have in real estate in the portfolio. GMRE owns almost a billion dollars in medical properties with 115 buildings across more than half the nation. Not only should healthcare properties do well compared to other real estate, the average lease term over eight years means vacancy and rents should remain fairly stable.

And I like Global Medical here because unlike a lot of other healthcare REITs, its portfolio is in medical office and hospital instead of senior care and long-term care facilities. Leases target a built-in rent escalator of 2% annually and are on triple-net lease terms which means the tenant pays all costs and just keeps sending those checks to the company.

The problem right now for medical office and hospitals is that elective surgeries have been pushed back to make room for COVID patients. Those elective surgeries are higher profit so hospital earnings are lower but again, on those triple-net lease terms, it doesn’t hurt Global Medical as much. Only one analyst with a price target of $12 per share here so don’t read too much into this but I like the shares on a rebound to $13 each on top of that 7% dividend yield.

Track your entire portfolio, see the gaps in your investments and compare two stocks instantly with my Portfolio Tracker spreadsheet.

Download this Portfolio Tracker and Stock Comparison Tool! [Use this Coupon Code for 57% Off]

These are some great dividend stocks to buy in July but more important is that you use the process to find the best stocks for YOUR portfolio. Look at the assets and sectors in your portfolio to find the gaps and the stocks to watch that will lower your risk.

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