The Prudent Speculator follows an approach to investing that focuses on broadly diversified investments in undervalued stocks for their long-term appreciation potential. Does that mean we build portfolios of 20 stocks…30…? More like 50 and up. We like stocks. And we like a lot of ‘em. We don’t rely nearly as much on “how many” as we do “in which,” but we tend to invest in far more names than most. This expansive diversification, we find, potentially serves us well in two ways: we can further minimize the risk of individual stock ownership, while maximizing the likelihood of finding the truly big winners among the undervalued masses.
As for the “in which” part, readers should know we discriminate among potential investments primarily by their relative valuation metrics and our assessments of stock-specific risk. We buy only those stocks we find to be undervalued along several lines relative to their own trading history, those of their peers or that of the market in general. Our Target Prices incorporate a range of fundamental risks (e.g. credit, customer and competitive dynamic) that we believe the companies may face over our normal three-to-five-year investing time horizon.
This month, we added stakes in two companies to my personal portfolio, known as Buckingham Portfolio.
Comerica (CMA)
Comerica is a financial services company with three core business segments: The Commercial Bank, The Retail Bank and Wealth Management. CMA has operations in Texas, Arizona, California, Florida and Michigan. Given hedges on its loan portfolio out to 2026, Comerica has transformed itself into drastically different exposure than in pre-pandemic form with its modest net liability sensitivity. The stock has shed over 15% since late-November on remarks about tepid loan growth, declining non-interest-bearing deposits amid a “higher for longer” rate environment and litigation with the CFPB over its Direct Express program. With loan growth slowing, the bank had recently expressed interest in paying down higher cost deposits. Of course, interest rate cuts by the Federal Reserve should help on that front, while the stock’s latest slide ought to support management’s plans to initiate buybacks. We expect EPS projections for the next couple of years to prove overly pessimistic, which would add appeal to the 11 P/E multiple and 4.6% dividend yield.
PPG Industries (PPG)
PPG is a global supplier of industrial and performance coatings with last-12-month revenue near $18 billion. PPG operates in more than 70 countries serving customers in construction, consumer products, industrial and transportation markets and aftermarkets. The company is the second largest coatings firm in the world and holds top-two positions in the majority of its diverse end markets, ranging from branded house paint to sophisticated aero-space and electric automobile battery coatings, where PPG is a technology leader. Shares are down more than 20% over the past year, and markets were unmoved by the company showing growth in 7 of its 10 businesses last quarter. We think PPG offers attractive long-term upside with appealing organic growth opportunities, especially internationally in emerging and developing countries. Despite the ongoing headwinds in residential and do-it-yourself markets amid higher mortgage rates, we think there is opportunity given the average age of U.S. housing supply. We are also constructive on the potential for aerospace and protective marine coatings. It is worth noting PPG is selling two underperforming businesses (architectural and silicas) for a combined $860 million which should help strengthen the balance sheet, support improved margins and enhance shareholder return opportunities. PPG shares trade at 13.5 times NTM adjusted EPS and have a current dividend yield of 2.4%.
This report is an excerpt from The Prudent Speculator investment newsletter, of which I am Editor. For more in-depth analysis and exclusive insights like those shared in this article consider joining The Prudent Speculator here.
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