Three Admired Companies with Solid Fundamentals
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Fortune Magazine has recently released its list of most admired companies, which is an interesting place to look for long term investment opportunities. After all, gaining the recognition of peers in the corporate world is a remarkable success which only the best companies in the world can achieve. Because not every great company is a good investment, I have selected three companies with a solid track record of dividend growth and reasonable valuation ratios.
IBM (NYSE: IBM) has been selected as the best company in information technology for 9 consecutive years. The company transformed itself through the years from a hardware manufacturer to a provider of software and services, increasing profit margins and cash flow generation in the process. Management has been able to make the right decisions and adapt the company to a changing scenario to better fit its client´s needs.
Warren Buffet has recently been very explicit about why he likes IBM; the company´s financial management and shares buyback are one of the aspects that the Oracle of Omaha likes the most. Cloud computing and other trends in the sector provide ample growth opportunities for this IT titan in the future. IBM pays a 1.5% dividend yield, has increased dividends for 16 years in a row and trades at a very reasonable P/E ratio of 15.4
Procter & Gamble (NYSE: PG) has occupied the place of the most admired company in the soaps and cosmetics category since 1997, and is one of the few companies in the world that have stayed in the top position every year since they were included in the survey. Procter & Gamble has 50 leadership brands that are some of the world best known household names, within those 50 brands, 24 of them generate more than $1 billion in annual sales.
A unique brand portfolio, enormous economic scale and abundant financial resources make of Procter & Gamble one of the safest alternatives for long term, risk conscious, investors. The business is quite resistant to fluctuations in the economic cycle and Procter & Gamble has very strong competitive advantages. The company trades at a P/E ratio of 19.7, which is in line with its historical valuation, dividend yield is 3.2% and Procter has increased dividends in each of the last 55 years.
McDonald's (NYSE: MCD) has been selected as the most admired company in the food services industry since 2007, which is not surprise at all considering the company´s leadership position. This fast food giant has also been flexible enough to adapt to changing consumer needs through innovations like healthy meals and the successful McCafe business.
Shares of McDonald´s took a beating last Thursday when the company reported lower than expected same store sales, but the market seems to be overreacting like it usually does with bad news: same store sales grew at a 7.5% versus analyst expectations of a 7.7% increase. McDonald´s trades at a P/E ratio of 18.4, yields a 2.8% in dividends and has increased dividends in the last 35 years.
These three companies have been outstanding investments over the long term, and they have what it takes to continue beating the market in the following years.
Motley Fool newsletter services recommend McDonald's and The Procter & Gamble Company. The Motley Fool has no positions in the stocks mentioned above. acardenal has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.