3 Stocks That Are Top Bets for Retirement
The global economy is in disarray, and stocks are likely to move lower over the next several years due deflationary pressures. On the other hand, this is not the end of times as many people predict. It’s just a necessary part of the long-term economic cycle.
What has led to confusion is the distortion created by the Federal Reserve. However, not everyone will complain about Federal Reserve intervention since it led to significant stock appreciation between 2009 and 2014. Now that natural economic forces are beginning to take hold, investors are confused as to whether the economy is improving or not.
Here’s the simple version: Everything you’re witnessing is based on cheap money. Without that cheap money, the economy is not improving, and that all begins with a slowdown in consumer spending. Remember that the consumer represents two-thirds of the economy. As Baby Boomers continue to retire in droves, that consumer spending slows. There is no way around this.
All that said, while the stock market is likely to take a significant hit at some point over the next 18 months, it will eventually bounce back. And the best slow-and-steady and fiscally-sound companies will represent excellent buying opportunities after being unfairly punished. If you’re wise and patient, you could slowly begin to buy shares in these names and continue to do so on the way down, thereby reducing your cost basis. Another approach is to talk to your financial advisor about setting up a DRIP, or dividend reinvestment plan. (For more, see: The Perks of Dividend Reinvestment Plans.)
The stocks below aren’t guaranteed winners, but odds are high that they will outperform the S&P 500 over the next decade. The information provided below will be kept simple and is primarily based on fundamentals. It’s recommended that you research these names further prior to making any investment decisions. Your first step should be to dig into SEC filings, which provide the most valuable information.
Johnson & Johnson
Revenue and net income aren’t everything, but they’re where you should begin. After all, what’s more important in business that sales and profits? With that in mind, let’s take a look at top line and bottom line performance for Johnson & Johnson (JNJ) over the past three fiscal years: (For more, see: How Johnson & Johnson Became a Household Name.)
Whenever you read something negative about Johnson & Johnson, keep in mind that this company has been around since 1885. Think about all the challenges Johnson & Johnson had to overcome over that time frame. The stock has also appreciated 8,654% since its IPO. Therefore, when you see that the stock has depreciated 10.64% over the past year, it’s not time to panic, especially if it’s an investment for retirement. Additionally, a 3.21% dividend yield helps ease the pain.
On top of all the aforementioned impressive numbers, JNJ sports a very low debt-to-equity ratio of 0.27. And it has generated $ 17.09 billion in operational cash flow over the past 12 months. Furthermore, there is only a 1.34% short position on the stock, indicating that very few people are willing to bet against it. If stocks across the board take a hit in the upcoming deflationary environment, then JNJ is absolutely a name to keep on your watch list. Or, if you already own JNJ, then you might want to consider keeping some powder dry so you can add to your position in the future. (For more, see: Is This Johnson & Johnson’s Next Blockbuster?)
General Mills, Inc. (GIS) isn’t as impressive on the top and bottom lines over the past three fiscal years, but it’s being listed here for other reasons. One, it’s relatively resilient to bear markets due to the nature of the business and broad product diversification. Two, it has partnerships with Amazon Inc. (AMZN) and Wal-Mart Stores Inc. (WMT) for online ordering, which will in the future shift from single item to full basket. Three, General Mills always pays a dividend and currently yields 3.14%.
GIS has appreciated 12.19% over the past year as well as 1,540% since its IPO. It isn’t likely to appreciate in a bear market environment, but the long-term performance should remain intact. (For more, see: General Mills Goes Small with it’s Sale of Green Giant.)
Microsoft Corp. (MSFT) is often referred to as a boring stock, and it didn’t hold up as well as some of its peers during the financial crisis. But you need to look forward, not behind. Microsoft is recreating itself to a certain extent, which is based on the strategy of new CEO Satya Nadella. This strategy includes a new software licensing model, cloud computing services, and a new Windows operating system for mobile and PC. In regards to fundamentals, Microsoft is impressive with a debt-to-equity ratio of 0.44, operational cash flow generation of $ 29.08 billion over the past 12 months, and the following top line and bottom line numbers over the past three fiscal years:
While the stock has depreciated 1.13% over the past year, it has appreciated 47,868% since its IPO. It currently yields 3.25%. (For more, see: How Microsoft & Apple’s Balance Sheets Compare.)
The Bottom Line
Guarantees are impossible in the investing world, but the odds of these three companies failing are about as high as Elvis throwing a surprise concert in Las Vegas – in his prime. Any stock prices deprecations over the next few years should not be seen as indications that these businesses are faltering; those stock deprecations will be based on the economic environment, which is out of the control of any business. If this type of environment presents itself, then it should only be a matter of time before these companies rebound. Therefore, if you’re investing for retirement and you own these stocks, don’t even look at the stock prices over the next few years and do nothing at all, knowing all will be okay over the long haul. If you’re taking a more active approach, then consider very slowly dollar-cost-averaging in the near future, with the intention of buying the majority of shares if the DJIA trades below 10,000 at some point over the next 18 months. (For more, see: The Best Buy-and-Hold Stocks for Your Retirement Portfolio.)
Dan Moskowitz does not have any positions in JNJ, GIS or MSFT.