Value Alert: Only for the Long-term Investor
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the market continues to be volatile, many investors are left wondering where we can find the right balance of having some security and growth. Obviously, bonds, savings account, and/or certificates of deposits don’t look like a nice option when we see they give a negative real rate of return. Commodities are extremely volatile and real estate continues to be depressed. However, investing in diversified companies, such as these three below, should provide returns that outperform the market in the long-run.
Healthcare giant Johnson & Johnson (NYSE: JNJ) has many well-known products that hundreds of millions have used, including this fool, such as Tylenol, Sudafed, and Neutrogena. Moreover, JNJ is one of only four companies left in the planet with the highest and coveted AAA credit rating giving it access to some of the cheapest debt around. That's a very valuable asset not shown on its balance sheet along with its massive brand awareness and world-wide supply chain. Moreover, the company trades at a reasonable 18.5x trailing and 12x forward Price/Earnings, comparatively strong 9% return on assets, 17% return on equity, and 25% operating margin, while sporting a very healthy and stable 3.5% dividend yield. Therefore, even if the stock is dead money, investors still get a considerably greater 3.5% return on their money compared to T-bills or money-market accounts giving less than 1%.
United Technologies Corporation (NYSE: UTX) is a well-diversified company with many well-known brand names in their respective industries, such as Otis in the elevator space and Pratt & Whitney regarding aircraft engines. The company has a stellar track record and relatively very stable earnings base making it a great long-term holding for the long-term income investor. The stock is rationally priced at just a 15x trailing and 12x forward Price/Earnings, 1.3x Price/Sales, 1.4x Enterprise Value/Sales, nice return on assets of 9% and return on equity of 23%, strong free-cash-flow this past year of $5.6 billion, and consistently growing 2.3% dividend yield. In addition, UTX is a great beneficiary and should experience even more growth as the general economy continues to recover giving investors more assurances that the stock and dividend should continue to move higher.
Farming equipment and construction giant Caterpillar (NYSE: CAT) is recognized predominately for their large yellow bulldozers at a highway or construction site near you. The company is a great beneficiary in a bullish economy as naturally when the general market is growing, the need for more construction eventually rises, and as a result Caterpillar’s diversified earth-moving equipment become more in demand. Luckily for investors, even as the stock is near an all-time high, it trades at a reasonable 15x trailing and 10x forward Price/Earnings, .45x price-to-expected-growth, 1.2x Price/Sales, very strong 40% return on equity, and respectable 1.6% dividend yield. I'd be a buyer here of CAT on any weakness.
One of the most well-known and largest firms in the world is General Electric Company (NYSE: GE) as it has its hands in everything from wind turbines to television through its NBC subsidiary. It also has the nice distinction of being the longest running stock in the Dow Index ever since it was added in 1907 and looks to continue staying in there as it has greatly recovered from the massive damage its financial arm (GE Capital) caused in 2008. Trading at just a 15x trailing Price/Earnings, 11x forward Price/Earnings, 1x price-to-expected-growth, very strong free-cash-flow this past year in excess of $20.5 billion, and very nice 3.7% dividend yield I believe makes GE a buy. Moreover, again it looks to have largely overcome the troubles it was having with GE Capital back in the 2008-2009 financial turmoil and more focused on streamlining their existing very profitable businesses. Consequently, GE has raised the dividend four times already since the summer of 2010 and continues to look focused on rewarding shareholders through more dividend hikes and that is always a “foolish” way of investing.
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