Polaris

Polaris (NYSE:PII) manufactures recreational vehicles, such as motorbikes, snowmobiles and quad bikes. It’s one of the best-established powersports brands. There are two major headwinds facing the company at the moment. The first is inflation. High commodity prices means that Polaris has to spend more manufacturing its vehicles and then try to pass this on to its customers. The second is global supply chain issues. Difficulties getting hold of parts — most notably semiconductors — increase the time it takes Polaris to build its vehicles, slowing down revenues.

While the company’s stock is trading as though investors are seeing an enduring problem here, I’m anticipating both of these headwinds turning out to be temporary. An investor buying Polaris shares today could pick them up at a price-to-earnings (P/E) ratio of around 14, but I don’t believe this tells the full story. This is a company that will have ups and downs, yet I think that now might be a good time to invest. I’m looking at adding some shares to my portfolio at the moment.

Adobe

Unlike Polaris, Adobe (NASDAQ:ADBE), is fairly well shielded from inflation. The company makes software for creative publishers. Its line-up includes photo and video editing programmes, e-signature apps, and marketing software. As a software company, it doesn’t have to buy in physical commodities or materials to sell its products. The result is that those products tend to have high margins and its stock tends to have a high price tag. 

To my mind, Adobe is clearly a wonderful business. The trouble is, nearly everyone else seems to agree. As such, Adobe’s shares are almost never cheap. They’ve been falling recently, though, so the question is whether or not they’ve fallen enough to make the stock attractive from an investment perspective. I think that they have.

Adobe shares currently trade at a P/E ratio of just over 40. That’s quite high, but with earnings forecast to increase by around 25% annually, I take the view that Adobe has the capacity to justify this price tag. I also believe it’s worth noting that Adobe’s shares have historically traded at an average P/E ratio of around 52. While that by itself isn’t a reason to buy a stock, I think it’s worth paying attention to.

Summary

Right now, I’m looking at two major themes as I search for stocks to buy. The first is companies that are facing inflationary headwinds. I think that inflation will subside over time (though I’m not taking a view on exactly when that will be) and that companies like Polaris will be able to use their strong brands to pass on a good amount of their additional costs. I’m also looking at technology stocks that have been falling as interest rates rise. And I believe that Adobe might have fallen too far, providing an opportunity for investors like me. At today’s prices, I’d be happy buying either for my portfolio.

Kellogg

The first dividend stock that I’m watching in March is Kellogg (NYSE:K). The stock has a dividend yield of around 3.5% at the time of writing, but dividend isn’t just about looking at yields. It’s about looking at the underlying business, and I think the business at Kellogg’s is in decent shape. Rising input costs due to high commodity prices and supply chain shortages are a threat at the moment, but I think that Kellogg can weather the storm and provide a reliable dividend.

Kellogg is best known for its cereal brands, but about half its revenue these days comes from its range of snacks (Pringles being the most prominent). The company has entrenched relationships with retailers, which helps protect its competitive position and its management has been investing in its brands, which I view as wise. I’m very interested in buying this stock, priced at around $60.

British American Tobacco

The second dividend stock on my radar is British American Tobacco (LSE:BATS). The usual view on stocks like this one is that they have attractive economics but a diminishing market. So an investment comes down to whether or not there’s enough left in the market to justify the current price. I agree with half of this. I agree that the economics of smoking are attractive, but I don’t think that the market is diminishing. While it’s true that smoking is less prevalent, the number of people who smoke has increased steadily since 1990. 

The drawback to British American Tobacco is that it generates the majority of its revenue outside the geographic regions where the number of smokers is increasing the fastest. But I think the global growth of smoking goes some way toward explaining the company’s steady revenue growth over the last decade. The company currently pays a dividend with a 6.5% yield and I think it might well continue to do so. 

Polaris

The last stock on my dividend stock list for March is Polaris (NYSE:PII). The company designs and manufacturers off-road vehicles. With a 2.1% yield, this isn’t the most obvious stock to include here. But I think the company’s investment proposition might be attractive to me as an investor seeking passive income going forward.

At the moment, Polaris is battling a collection of headwinds. Supply chain disruption, cost inflation, and a slowing global economic environment are all pushing against the company’s sales. But I think that this is reflected in the stock price and these headwinds won’t last forever. 

The risk for this investment comes from uncertainty around how long these headwinds will persist. I think, however, that the market is currently overreacting to a difficult macroeconomic situation for Polaris, so this might be a good time to pick up shares in a strong company that is a reliable source of passive income.