Praxair (PX): 10% to 12% annual dividend hikes

By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 11/10/14 Sign up for Cabot Wealth Advisory—it’s free!

Anyone paying any attention to the investing world knows it’s been a terrible year for commodities.

Over the past 12 months: Gold is down 5.3% Copper is down 12.2% Platinum is down 13.0% Corn is down 15.0% Oil is down 17.8% Tin is down 18.7% Silver is down 21.0% Sugar is down 28.6%

So why would you buy a commodity now?

Because it’s cheap, of course, and somewhere in the future, commodities will enter into an uptrend.

But how do you decide which commodity to buy?

Well, you don’t buy chocolate because you like Hershey Bars, you don’t buy coffee because you’re a big fan of Starbucks, and you don’t buy gold because you like jewelry.

No, the best way to select a commodity, or any undervalued investment, is to consult Roy Ward, whose totally objective, unemotional system consistently identifies high-quality companies that are temporarily “cheap.”

In his latest issue, published just last week, Roy recommended Praxair (PX), which has an uninspiring chart.

And here’s what he said:

“Praxair is the largest industrial gases company in North and South America and one of the largest worldwide. The company produces, sells and distributes atmospheric and specialty gases and high-performance surface coatings. Praxair’s customers are in the aerospace, chemicals, food and beverage, electronics, energy, healthcare, manufacturing and metal fabrication industries.

“Sales and earnings growth stalled in 2012 and 2013, but growth is accelerating in 2014. Sales rose 5% and EPS advanced 12% during the 12 months ended 9/30/14. Sales and EPS will likely rise 8% and 10% respectively during the next 12 months. Dividends have been paid and have increased every year since Praxair was spun off from Union Carbide in 1992. Dividend hikes have averaged 19% during the past 10 years but will likely average 10% to 12% during the next five years.

Praxair sells at 19.6 times current EPS with a dividend yield of 2.3%. I expect PX to rise to my Minimum Sell Price of 148.31 within one year.”

Pretty simple, right?

Now, you could simply buy PX here and put it away until it tops 148 (a gain of 17%), but there’s one more detail to consider.

Roy not only has a Minimum Sell Price for Praxair (and for 274 other high-quality stocks in every issue), he also has a Maximum Buy Price—and that’s the key factor you need so that you don’t overpay when you buy the stock.

If you overpay, you lose the Margin of Safety, and that’s a key component of value investing.

So what you really should do is join Roy’s very satisfied long-time readers, so you can be kept up to date on PX and all the undervalued companies in Roy’s portfolio.

Details here.

Note: Since inception on 12/31/95, Roy’s Cabot Value Model has provided an impressive return of 1,104.2% compared to a return of 554.2% for Warren Buffett’s Berkshire Hathaway. During the same 18-year period, the Dow has gained just 239.8%.