Get Addicted to These 5 Stocks

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Psst. Hey, buddy. Yeah, you. Wanna buy some addictive stocks?

MO-stock-SBUX-stock-WYNN-stock

Well, the stocks themselves aren’t addictive, but the products they represent are. You should want to buy them. They all sell products that people all over the world keep coming back to. They’re hooked. So why not profit off their inability to say no?

Look, it’s not like I’m some guy in a trenchcoat trying to sell you stocks under the table. My point is that there are products that are addictive, and that’s one reason why they make for good business.

And that’s exactly why ou should consider holding these stocks in your portfolio.

Cigarette Stocks

MO-stock-SBUX-stock-WYNN-stockLet’s start with one of the most addictive products out there: cigarettes. Despite the fact that every city in America seems intent on banning cigarettes in public locales, that doesn’t stop smokers from lighting up.

That means you should go with either Altria Group (MO) or Philip Morris International (PM). And if you’re only interested in buying one, I think I’d select MO stock. It pays a slightly better divided (5.2% vs. 4.7%).

MO stock also has a stronger balance sheet, with cash almost offsetting debt. PM stock is carrying $24 billion in debt and only has $3 billion or so in cash. MO stock has a slightly higher long-term growth rate, as well (7% vs 6%). And it trades at a slightly lower valuation (a P/E ratio of 14 vs 16 for PM stock).

Coffee Stocks

MO-stock-SBUX-stock-WYNN-stockWhat makes the perfect companion to cigarettes, particularly if you fancy yourself a Bukowski or angst-ridden writerly type? Coffee, of course.

You have two different selections here. The first is the always-great Starbucks (SBUX), for which there is really no substitute. Normally, I’d be circumspect about buying a stock trading at 27x estimates, on a long-term growth rate of 19%. However, SBUX stock has $2.4 billion in net cash, and it continuously generates free cash flow in gigantic amounts. It’s extremely consistent, it keeps expanding into new product lines, its core product of coffee continues to sell, and valuation has never been a drag on the company.

You could also choose Green Mountain Coffee Roasters (GMCR). I think it’s a riskier play than SBUX stock, as it trades at 30x earnings on a 17% growth rate and doesn’t pump out the cash the same way that SBUX does. It’s a growth story, to be sure, but there also a few accounting questions lingering. Personally, I’d go with SBUX stock.

Gambling Stocks

MO-stock-SBUX-stock-WYNN-stockFinally, if you’re smoking and drinking coffee, you may as well belly up to the craps table at Wynn Resorts (WYNN).

It’s not an addiction pure play, because Wynn relies on both its hospitality segment as well as its gaming segment. So in that regard, you can just say you are protecting your addiction play with diversification. WYNN stock is the world-class name here. Things were looking a little ragged for awhile for all the gaming stocks, but Macau has really juiced everyone’s fortunes.

Wynn is expensive at 30x earnings, but you don’t bet against Steve Wynn in the long term, and you certainly don’t bet against any gambling house. After all, games are designed for the house to win in the long run. And if you’re smart enough to buy WYNN stock, you’ll do the same.

Lawrence Meyers does not own shares in any company mentioned.


Article printed from InvestorPlace Media, https://investorplace.com/2014/03/get-addicted-5-stocks/.

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