This time of year, we always hear talk about giving kids shares of stock before the Dec. 31 cut-off for year-end tax savings.
The natural instinct is to purchase shares of stocks that kids will know like Disney (DIS), McDonald’s (MCD) and Mattel (MAT). That’s not a horrible idea, as it will give your kids familiarity with how markets work, tracking companies and reading reports about companies they already know and love.
This year, though, you might consider changing things up a bit and giving them stocks in industries that will benefit from the political, social and economic trends the world will see as they are growing up. These are the companies that will deal with the issues on the front page as your kids grow toward adulthood.
And as a bonus, some of the trends are powerful enough that if your children hold the stock long enough, they might land one of those 100-to-1 winners Thomas Phelps talked about in his excellent book, 100 to 1 in the Stock Market.
Great Stocks to Give to Your Kids: Check Point Software Technologies Ltd. (CHKP)
The world is moving online and it will continue to do so as the years go by. Unfortunately, crime and even war are also gravitating to the online world. Cybersecurity is becoming a major issue, and it will only grow in importance in the decades ahead.
Check Point Software (CHKP) is a leader in the cybersecurity space, offering products for large and small businesses, Internet providers and consumers.
The cybersecurity market will only grow in the years, and Check Point is a market leader, holding the top position in the firewall equipment space with 23% share.
The balance sheet is solid, as CHKP has no debt and $1.3 billion in cash and short-term investments, and $2.4 billion in long-term investments. Sales in the next few years will be driven by small to mid-sized businesses recognizing the need for great online and mobile security, and Check Point is well-positioned to capture market share in this sector.
Great Stocks to Give to Your Kids: Equity Commonwealth (EQC)
Commercial real estate has long been a source of wealth building, and with the developing trend for millennials and as a consequence to move back downtown, Equity Commonwealth (EQC) is in a great position to buy desirable office properties when it can get attractive pricing.
EQC sells off suburban office buildings as the commercial real estate market strengthens, and raises cash to purchase in better locations when the market softens. Equity Commonwealth also has been using cash from property sales to buy back stock and de-lever the balance sheet.
Led by Chairman Sam Zell, the company has changed dramatically since activist investors forced out the old board last year, and EQC is now sitting on $1.8 billion in cash to put to work when the opportunity presents itself.
Owning a commercial real estate portfolio managed by one of history’s most successful CRE investors — and the people he has trained — should lead to impressive returns as your little tykes grow older.
Great Stocks to Give to Your Kids: Capital Bank Financial Corp (CBF)
The consolidation of the banking industry will continue through most children’s developing years and well beyond. Smaller banks find it increasingly difficult to remain independent given the ever-growing costs of regulatory compliance and technology.
As investors, we can make money from banks that sell at a premium … but looking at the super-long-term, it’s often better to own the buyers. In fact, David Ellison of the Hennessy Small Cap Financial Fund (HSFNX) recently told Barron’s that “I’ve made most of my money over the years buying the good buyers [of other banks] and holding on — banks that make eight to 10 acquisitions over a decade, don’t overpay, and create a real company that’s worth something.”
Capital Bank Financial (CBF) was formed in the heart of the credit crisis in 2009 to build a premier southeastern regional bank, and it is well on its way to achieving that goal. Management has shown it has the know-how to make smart deals, and I think we’ll enjoy a few decades of smart growth driven by M&A activity.
As of this writing, Tim Melvin was long EQC and CBF.