8 Great Investments For Income And Growth In 2019
Last weekend I moderated a panel of investment gurus at the American Association of Individual Investors annual conference, held in the Paris Hotel in Las Vegas, Nevada
The discussion came on the heels of a brutal week in the stock market, with the S&P 500 and the Nasdaq both down nearly 4%, culminating weeks of volatility and market-value evaporation. According to data from Wilshire Associates reported in Barron's that morning, the stock market had shed more than $3 trillion in value in a little over one month.
With that overhang, the discussion ranged from interest rates to ETFs’ troubling effect on stock prices, China’s bear market and the increasing irrationality of individual stock prices.
In the end, the value-investing-biased panel agreed that it was too early to start worrying about a recession or significant inflation, and that we were in a “stock pickers” market—where individual investment selection was the best way to safeguard against wild market swings. I asked each of them for their two best ideas for the next 12 months. Below are their picks along with commentary from their investment letters.
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General Motors (GM)
Market Cap: $45 billion
“While the competition is always fierce in the auto industry and there is definitely some increased input costs to battle, we continue to believe that GM is executing on its core business incredibly well despite ongoing macroeconomic volatility. We still like its solid balance sheet ($24 billion in cash and marketable securities), cost controls initiative, ability to generate free cash flow and generous capital return programs. The stock now trades for 6 times forward earnings projections and yields 4.6%.”
International Paper (IP)
Market Cap: $17 billion
“International Paper produces and distributes paper products primarily for industrial use, including printing and writing papers, pulp and corrugated boxes. IP manufactures one in three corrugated boxes in North America and generates three quarters of revenue from the U.S. In addition to solid free cash flow and analyst EPS growth estimates of at least 7% for each of the next three years, IP should benefit from a lower tax rate (33% in 2017 to 26% in 2018+) and a solid 25% EBITDA margin in its Industrial Packaging (69% of total revenue) business. After tumbling from January highs, IP sports attractive valuation metrics, including a forward P/E ratio below 9 and a dividend yield of 4.6%.”
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Martin Fridson, Forbes/ Lehmann Income Securities Investor
Synovus Financial (SNV-D)
Market Cap: $5 billion
“Regional bank holding company Synovus Financial Corp. got its start when a Georgia textile worker ‘s dress got entangled in a machine. The money she had sewn into the hem spilled onto the floor. After she explained that she believed her clothing was the safest place for her savings, a manager offered to store her money in the mill’s vault and pay her interest. Before long, the company extended the service to all employees. That was the origin of Columbus Bank and Trust Company, now known as Synovus. Its 6.30% preferred is currently yielding 6.19%.”
Assurant (AIZP)
Market Cap: $6 billion
“Global risk management firm Assurant got its start in the early 1890s as the La Crosse Mutual Aid Association, initially focusing on disability insurance. Later known as the Time Insurance Company, it was acquired by the Dutch company AMEV in 1978. Time then expanded through a series of acquisitions. It was spun off and renamed Assurant in 2004. Assurant’s 6.50% fixed rate mandatory convertible preferred, due in 2021, sports a current indicated yield of 6.12% and has meaningful price upside. The company is performing well currently, with net income up 29% year-over year in the second quarter.”
John Dobosz, Forbes Dividend Investor and Forbes Premium Income Report
Fastenal (FAST)
Market Cap: $14 billion
“Despite the harsh reaction to disappointing earnings from Wall Street in early October, Fastenal, one of the largest distributors of screws, bolts and other fasteners, retains its appeal as an income-producing value stock, with a dividend yield of 3% and price multiples at significant discounts to five-year averages. … Six-figure buying by top executives immediately after the stock dropped confirms for me that my assessment of value is shared by people in the know.”
Walgreens Boot Alliance (WBA)
Market Cap: $73 billion
“Deerfield, Ill.-based Walgreens Boots Alliance (WBA) is the largest retail pharmacy in the U.S. and Europe and have a presence in more than 25 countries. The company has more than 13,200 stores in 11 countries as well as one of the largest global pharmaceutical wholesale and distribution networks. It’s also one of the world’s largest purchasers of prescription drugs. Brands include Walgreens, Duane Reade, Boots and Alliance Healthcare. The company has been a prodigious payer of rising dividends, hiking the quarterly payout by 10% to $0.44 in August. The next ex-dividend date will roll around in the middle of November. Dividend yield is currently 2.3%.”
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Jack Tatar, Forbes CryptoAsset & Blockchain Advisor
Bitcoin (BTC)
Market Cap: $112 billion
“Bitcoin should be the foundational asset for anyone’s crypto asset portfolio. Bitcoin is a volatile asset. It’s currently selling at a third of the value it had less than nine months ago, but if you look back further it is trading near its year-ago levels.I believe there is a support level around $6,000 for BTC. ... Certain fundamental catalysts may be on the horizon. First, we’re getting closer to approval of a bitcoin-based ETF. I’d say it’s likely that we see a positive announcement on this front during 2019. Another catalyst may come from the institutional investor community at large, which is warming to the idea that bitcoin is a legitimate alternative investment. If bitcoin replaced only 10% of the gold market, at current gold prices, it would be selling for more than $35,000.”
Square (SQ)
Market Cap: $30 billion
“For those not yet ready to by crypto assets directly, one alternative is to pick stocks of companies embracing the new technology. Chief executive Jack Dorsey is committed to bitcoin and believes it will have an impact on financial systems worldwide. Square is an alternative payment technology company—a fintech—which works with a growing number of small businesses (who typically pay credit card fees). Square currently accepts and encourages its vendors to accept bitcoin as a means of payment. Its Cash app, which has been gaining in users (7 million) and now has more downloads than Venmo, has expanded to all 50 states. The price of Square is currently near an all-time high, but with its growth prospects and potential to realize long-term returns on its bitcoin integration, it is a core holding in my Blockchain Equity portfolio.”
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