Increased Position: Solvay

The markets are depressed! And oh boy, how they are depressed. Bad news from China, falling oil prices, a strong dollar… Actually, I don’t give a fuck. I just see windows of opportunities coming my way although I haven’t much spare cash available until my paycheck comes in. I had some money uninvested for like, a real opportunity. And that’s what I used to go shopping in a stock market with serious discounts.

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So I took my guts and most of all, my money and decided to buy 20 additional shares of the Belgian chemical group Solvay for a total price of €1580. This additional buy brings in another €49,64 net dividend a year.

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For this year, I already missed €20 but there is still almost €30 left, not to mention all the other years coming of course. This brings my total position in Solvay up to 72 shares, which makes up quite a big stake in my portfolio. Although I’m not really respecting an equal percentage in my portfolio, I think I’m doing a good thing. These 72 shares will give me a yearly net income of €178,70.

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Why did I even buy more shares of Solvay? There are a couple of reasons. First of all, they are in the market disgrace because of 3 main reasons, in my opinion. 1) The recent acquisition of Cytec did cost a lot of money and they had to do a capital raise. This brought the share price down and did some dilution as well. 2) They recently had some hold or sell ratings from a couple of banks (based on the lower oil price). 3) The lower oil price might have a small negative impact on their revenues. The recent market dip and bad news train has brought the shareprice down a lot.

What are the positive points on Solvay? The shares are trading under their fair value (€87).
They have been existing for more than 150 years and the Solvay family & relatives also hold a big stake in the company (30%). One of the biggest individual shareholders, Patrick Solvay (relative), has bought a big amount of shares in the first week of 2016. Shares were trading around €88 back then. In the picture downstairs you can see the 7 important sectors in which Solvay operates.

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They are trying to sell their Polyamides Division, to become a less cyclical business and this could bring in a nice € 1 Billion. This cash can be used to lower their debts of the acquisition of Cytec. The Group is going through a transformation towards a more stable and sustaining long-term value company. Actually they were already quite long-term, but now it’s gonna be less cyclical. Sounds good to me. Furthermore, they are becoming a world leader in the light materials business for the automotive and aeronautics, which is kinda a breakthrough. Lighter parts cost less fuel and it’s becoming more and more popular. They also managed to make an an all-plastic car engine, which has an amazing potential!

Management has also proved capable and intelligent. The current CEO, Clamadieu, was able to pull Rhodia out of big problems, made it successful again and then the company was bought by Solvay.

This all sounds good, but what about the dividend? In the end we’re still dividend growth investors aren’t we? Solvay can be seen as a strong European dividend aristocrat, for the numbers, look below.

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Now, what are other stocks I think are undervalued? I still have a €1,100 left to invest and the paycheck will come in soon too. More stocks, baby! But which? Well, I think the following stocks are rather undervalued and buyworthy: Cummins, Johnson&Johnson, PZ Cussons, Royal Dutch Shell and Smiths Group. 

Next month I plan on buying some additional shares of Shell, depending on the oil price (the lower the better), for a €1,100. As I think the oil prices will be vary volatile this year, I’ll be patient until time goes on a bit and see what the oil prices are doing. Plus, the annual report comes in and maybe the results are a little bloodier than hoped so this creates an opportunity. I’ll just keep this cash available for them Dutchies’. This is a rather sure buy.

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Next, I end up with another €1,500. Here comes the harder part. As I see a lot of opportunities but I’m limited in cash, I need to try picking the most undervalued shares.
I won’t be analyzing them in detail, but I’ll give some important numbers:

Cummins Inc designs, manufactures, and distributes engines, filtration, and power generation products. Current P/E 10,4. Yield: 4,54% + Share buyback program ($1B).

Johnson&Johnson: A well known, established healthcare company. This company doesn’t require much explanation. Current P/E: 16. Yield: 3,10%.

PZ Cussons: This is a rather small British consumer goods company that sells their products in emerging markets (especially Nigeria). Currently they’re having some headwind from the changing currencies. However, they have been a dividend aristocrat for 42 consecutive years. Current P/E: 15,8. Yield: 3,10%.

Smiths Group: is a British multinational diversified engineering business in technology. They have 5 divisions: Smiths Detection, Smiths Medical, John Crane, Smiths Interconnect & Flex-Tek. P/E: 14,6. Yield: 4,53%. I found a consecutive increasing dividend history since 1994.

I think all 4 are quite good choices at the moment. I think that Cummins will continue to have some small problems in the near future so I think I will still have a chance to pick it up in one or 2 months. Johnson&Johnson are very stable in price and they don’t have much volatility. So I guess, this can wait too for like 2 months.

I think the window of opportunity will close sooner on PZ Cussons and Smiths so I guess I will be buying some of them. What are your ideas or stocks on the watchlist?

And don’t forget in this volatile markets:

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3 thoughts on “Increased Position: Solvay

  1. ambertreeleaves

    Interesting companies that you quote here. There are indeed some good opportunities that start to knock on the door.
    Moving a part from money from index to DGI is one of the plans I have for 2016. In the long run, I want to have a passive income stream that does not eat into my principal.
    In the short run, I have no time or insight to select stocks.
    Lists like this help…
    Solvay looks like a good buy. I do believe that the family aspect of the company is helping them in being a dividend stable player.

    Liked by 2 people

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