Many high-quality dividend growth stocks have recently experienced substantial drops in their prices. When the price of a common stock drops, investors will almost assuredly ask me if I like it better now. In fact, it is one of the most asked questions after a price drop that I get asked. However, the answer is always – it depends.
As I often state, measuring performance without simultaneously measuring valuation is a job half done. Therefore, just because the price of the stock drops does not automatically mean that the company has become an attractive purchase. This is especially true with significantly overvalued stocks.
I recently went through the S&P 500 and I have noticed many companies have experienced price drops recently. Unfortunately, the majority have fallen from already overvalued territory. Therefore, even though they are slightly less expensive than they were previously, they remain dramatically overvalued.
The moral of the story is base your stock investment decisions on fundamental values rather than short-term price activity. With this video I will examine several companies that have all had price drops but from different valuation levels.
In this video I will review dividend growth stocks Clorox (CLX), Church & Dwight (CHD), Amgen (AMGN) and Bristol-Myers Squibb (BMY).
— Chuck Carnevale
Source: FAST Graphs