It’s time to announce the results of our stock analysis for May and there won’t be any surprises this month. We actually had a tie between two stocks we previously recommended: General Motors Company (NYSE: GM) and International Business Machines (NYSE: IBM). After assigning all the points, both earned a final score of 13. If you’re the type of person that wants a little investment advice but also likes some choice, you’ll be happy with our post this month. In fact, there were some other companies that also scored very well but we like to minimize risk so we’re not recommending those ones. Potash Corporation of Saskatchewan (TSE: POT) also scored 13 and is currently trading 46% off their 52-week high while paying an attractive 5.8% dividend. If you don’t mind a little short term uncertainty, buying or increasing a position in POT would be a good move.
Every month we try to simplify things as much as possible so we feel compelled to actually choose a winner in the tie this month. We’re going with GM and here’s why. GM is 17.4% off their 52-week high and IBM is 17.1% off theirs so nothing notable there. We do see a difference in the P/E ratio, however. GM is at 4.8 while IBM is at 11 so, while they’re both similarly depressed from the 52-week high, GM is at a much better price overall, considering the P/E. In other words, their 52-week high should be higher so, technically, they’re on sale at a better price right now. IBM is more profitable on an EPS basis (13 versus 7 for GM) but we’re more interested in looking for a good price on a good company than current profitability. Finally, this is a blog about dividend income so the dividend difference between the two was the most important factor in our decision. The dividend for GM is currently 4.7% while that from IBM is 3.8 – almost a full percentage point difference!
To be honest, we feel both of these are great choices. If you previously bought IBM when we recommended them, it makes sense to buy more shares of that company to increase your DRIP (or compounding) potential. The same could be said for GM if you previously bought them. If you’d like to increase the diversity in your portfolio, buy the one you don’t already own. It’s really a no lose situation so whichever you choose you can sleep at night.
