How to Pick Stocks in January

3 Dividend Stocks to Buy in January 2020

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Dividend stocks I'm buying right now for my 2020 portfolio

Dividend stocks helped our Challenge Portfolio beat the market last year and I’ve found three to buy in January with room to run all year long.

In this video, I’ll show you how to find undervalued dividend stocks to buy and then reveal those three stocks I’m buying.

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New Year, New Stock Market Challenge

Nation, I loved our 2019 Stock Market Challenge and more than 150,000 of you tuned in to watch the 11 videos but this year I wanted to do something a little different.

We started January last year with 10 dividend stocks, almost the entire portfolio, and tracked it all year. The portfolio did great but felt a little stale tracking the same stocks every month.

So this year, we’re going to make the portfolio more dynamic. I’ll be picking new stocks to buy each month and dropping a few names along the way.

January Trends in Stocks

Now we talked about undervalued stocks in our 12-month plan last week and how those shares that lagged the market often get a bounce in January.

For example, those shares of HanesBrands in last year’s portfolio. Shares of HBI had lagged the market by 34% in 2018 but had strong upside potential in ecommerce and the brand. When investors took another look in January, shares started rising and then just exploded 46% higher after earnings were released.

How to Pick Stocks in January
How to Pick Stocks in January

Investors love coming back to these forgotten stocks in January and that can lead to an uptrend higher if fundamentals prove a good investment. We’re taking advantage of that trend for our first three stocks of the year.

I’m putting these stocks into my M1 Finance account and we’ll be adding to this portfolio each month with new stocks. I’m using M1 here because of that auto-invest tool that’s going to reinvest my dividends and the ability to invest evenly across all the stocks in my portfolio with one click.

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

How I Picked Our January 2020 Stocks

So for the three stocks to buy in January, I’m looking for companies that lagged the market last year. Not necessarily stocks with negative returns but ones that got left behind the broader market and could have some value left in the shares.

I’m filtering this for stocks with at least a 3% dividend yield or higher and with multiple years of rising sales.

That’s important, those strong business fundamentals because you don’t want to be investing in cheap stocks that are cheap for a reason. Like when I screened initially for stocks that lagged the market and had a 3% yield or higher, I was looking at a couple thousand of names, but a lot of these were going to be pure dogshit.

When I added a screen for rising sales year-over-year and improving profitability, it cut the list down to just over a hundred stocks.

What I got was a list of stocks with strong or improving businesses that investors had abandoned for some reason. Maybe it was to look for faster growth in tech stocks or maybe it was something else but there was very little financially wrong with these companies that screamed cheap stock even if that’s where the shares were trading.

Finally to narrow the list down to our top three stocks to buy, I looked for themes and trends I thought would play out over the year. These were things like an aging population or 5G or an end to the trade war, those big picture forces that drive a specific sector or part of the market higher.

This is the smartest investing you can do, investing along with those trends and universal forces that lift up every stock in a group. Then, even if you don’t pick the very best company, you still have that trend pushing the shares higher.

Which actually brings me to a question I wanted to ask before getting to our three dividend stocks for January. What do you think will be those biggest trends in 2020 investing? What themes are going to dominate the year whether it’s a certain sector like Tech did last year or the trade war or something else? So let me know in the comment section below, what are the themes or trends you think I should be following in stocks?

My Favorite 3 Stocks for January

Now onto those three stocks and why these are going to be the first in our 2020 dividend portfolio.

First here is WestRock, ticker WRK, an $11 billion leader in packaging and containers with a 4.3% dividend yield.

Now WestRock has actually been rising since October even though it lagged the market last year and that’s something you’ll see in these first two stocks I’m buying. We’ve already got some strength coming back to the price but still value in the shares.

So the paper packaging market hasn’t exactly been on fire lately. In fact a wave of consolidation has left fewer in the space and WestRock now controls over 25% of the market. Sales growth is expected in the low-single digits but shares are down 38% from the 2018 high so there’s a lot of value upside here.

Shares trade for just 10.8-times last year’s profits though earnings are expected lower by almost 15% over the next year. Now management has a great track record of beating expectations so I doubt earnings will be this bad but they will be lower.

Working in WestRock’s favor is the fact that the packaging industry has shrank so much, so many of the companies have been bought or busted, that the remaining suppliers are seeing better pricing power. The consumer market for packaging is holding up and the business side could get a boost from increased trade in the fourth and first quarter.

Analyst estimates range from just $34 per share on the low side to as high as $51 over the next year on top of that solid dividend payout.

Carnival Corporation, ticker CCL, and its 3.9% dividend yield was in our best consumer discretionary stocks video December 9th and is already up 14% but this one could keep running through the year.

The company beat expectations for earnings by 24% in its fourth quarter call, prompting three analysts to upgrade the shares.

In that previous video, I pointed to Carnival’s dominance in the cruise industry with 42% of the global market share. That’s almost double the next largest competitor, Royal Caribbean, and four-times Norwegian’s share of the market. But if you look at those three together, that’s 74% of the global cruise market, which means they’ve basically got an oligopoly and can control prices.

And when you consider only 4% of the population has ever been on a cruise, so combine that HUGE potential for demand growth with the world aging into that demographic that just loves cruising, this is a play not only for 2020 but for the next decade!

The company is set to get 19 new ships over the next three years, about a quarter of its 100-ship fleet and this could go a long way to better fuel efficiency and increase in supply.

Shares still trade for just 11.7-times earnings which are expected modestly 3.6% higher over the next year but management is consistently beating expectations by 10% or more.

We’ve got price targets for 15 analysts here from $42 a share on the low end to $59 per share but after that earnings report, I bet we get more analyst upgrades over the next few months.

On dividend plays, telecom is hard to beat and Spain’s Telefonica, ticker TEF, is a global powerhouse with a 6.3% yield.

Telefonica dominates the Spanish telecom market with a 40% control of the market but also operates the largest services in Germany, Brazil and is #1 or two throughout much of Latin America.

Sales growth has been weak but improving and I think we could be moving into a very good period for telecoms. New 5G service and the Internet of Things will bring a rebirth in new phones and connected devices, all hooked into Telefonica’s network and pushing cash flow higher.

The company has been aggressive at putting down fiber cable in just about every country where it operates so that’s meant some pretty high capital spending but the time is approaching where it’s going to be able to cut that spending and start enjoying the cash flow.

Only three analysts here so hard to draw a lot from this but price targets range from $8.21 on the low side up to $9.76 per share on the high end.

We'll be picking new stocks each month and tracking them all year long on M1 Finance. Don't forget to do your own research and make sure these three January dividend stocks are right for your portfolio before investing.

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