Stock of the Week

Dividend Stocks

After two years, the markets have corrected 10%. The averages fell as much as 12% before rebounding on Friday. The markets may continue to rebound, but the correction is probably not over.  The averages may in the next two months retest the lows.

Even with the pullback, the averages are still not cheap with the S&P 500 trading for 17 times earnings. While the growth stocks have come under pressure, the cheapest sector and the best buying opportunity may be in the value areas. With the sell off, a number of blue chip stocks now offer great dividend yields that should provide limited downside and good upside.

In the telecom space AT&T (T) and Verizon (VZ) yield 5.6% and 4.8% respectively. UK telecom giant, Vodafone (VOD) yields 5.7%. While the correction may be scary, these blue-chip defensive stocks should provide double digit returns when the markets turn.

In the auto space all eyes are on Tesla and their battery cars, but Ford (F) and GM (GM) continue to churn out consistent profits. Ford yields 5.7% and GM yields 3.6%.

In the tech space, cash is king. Apple (AAPL) has $170 billion cash net of debt. The company is committed to spending all the cash in the form of dividends, buybacks, R&D and possibly acquisitions. This correction came at a good time for share buyback plans. Apple currently has 20% of their market cap in cash and will continue to churn out an additional $60 billion in cash a year. On the value side, IBM (IBM) now yields 4% and will actually grow their sales this year. Trading for 10.5 times earnings and 1.7 times sales, it won't take much of a bounce to produce double digit returns. Cisco Systems (CSCO) yields 2.9% and will bring back $30 billion in cash from overseas and will continue to generate $13 billion a year.

Energy is an interesting space. Energy was the worst performing sector last year, but has been performing well since August as the price of oil has climbed 25%. Blue chips, Exxon (XOM) and Chevron (CVX) yield 4%. Schlumberger (SLB) yields 3% while International giant, British Petroleum (BP) yields 6%. In the growth space, a small cap oil company from Chile, Geopark (GPRK) has no dividend, but is growing sales 30%, earnings are expected to jump five-fold, yet the stock only trades for 9 times earnings and 1.3 times sales. Investors so far don't seem to trust the company or the stock, but if the company can meet expectations the stock should trade for 2 to 3 times sales and at least 20 times earnings which would be more than double from current levels.

In the short term the markets will remain volatile, but longer-term market corrections like this are healthy and provide buying opportunities for investors.