I said at the start of this year that picking just one stock as my favorite for all of 2017 was a challenge. I stand by that statement, but as it turns out I picked a good one.
Albemarle Corporation (NYSE:ALB), a global specialty chemicals company and my pick in the Best Stocks for 2017 contest, has performed extremely well, up more than 50% as of Dec. 14. I set a high bar for myself, but I’m up for the challenge of beating my own record.
In 2018, I’m setting my sights on technology — more specifically, the future of technology. We’ve all heard about bitcoin and the incredible investment it’s turned out to be. I will admit that the masses jumping into the cryptocurrency brings out my contrarian side. It makes me question whether this could be a bubble, but when I sit back and look beyond bitcoin my view quickly changes.
The truth is, bitcoin is just the tip of the iceberg. It’s all about the technology behind the cryptocurrency — blockchain. It’s one of the most exciting NexGen opportunities to come our way in a long time.
That’s why my pick for the Best Stocks for 2018 contest is Broadridge Financial Solutions, Inc. (NYSE:BR), which, through its technology, provides investor communications and other solutions to the financial sector. The company is one of the pioneers in its industry and stands to benefit greatly as blockchain changes the way financial business is conducted.
Broadridge has emerged as a standout name in this budding trend, completing a successful pilot test of a blockchain-based technology in the repurchase agreement market in collaboration with two large European banks in October. The technology helps to automate operations, enhance auditability and increase both efficiency and speed. In other words, it takes complex financial markets and makes them more transparent and efficient.
This isn’t BR’s first foray into blockchain either. The company partnered with JPMorgan Chase & Co. (NYSE:JPM) in 2016 to successfully test its technology with shareholder proxy voting to make it easier and more transparent. Considering BR was already the largest U.S. provider of proxy voting services, it made sense for it to step in here.
Checking Off Our Criteria
Those of you who invest with me in my NexGen newsletters know that I take a three-pronged approach to investing. This gives us a fully comprehensive picture of a stock as well as the catalysts that will take it higher. The three prongs are: fundamentals, technicals and what I like to call the intangibles — the themes and catalysts changing the market in the here and now.
We’ve already covered the intangibles for BR and it certainly checks the box there. Now, let’s see how it stacks up against our other two criteria.
Fundamentals: Broadridge is growing its bottom line at a solid clip, with earnings coming in at $3.13 a share in fiscal 2017 and expected to increase to $4.14 a share by 2019. The stock trades at 23X fiscal 2018 earnings estimates, which is a higher price-earnings ratio than that of the S&P 500 as well as its peers.
That’s okay, though, because BR has two factors working in its favor that justify its valuation and indicate higher prices in the future. The first is that the company is a leader in its industry, which we’ve talked about. As you can see in the chart below, over 80% of outstanding shares in the U.S. have their investor communications processed through Broadridge. And all top 10 global banks are its clients.
It’s also extremely encouraging that its client retention rate is 98%. Yes, you read that right — 98%! One of the most difficult tasks for any company is to gain new clients, so when one is able to hold on to customers this well it not only results in consistent revenue but also exemplifies just how good its services are.
Finally, the stock offers a 1.6% dividend yield. In fact, BR continues to increase its annual payout that has averaged annualized double-digit growth. I wouldn’t buy a stock solely based on its dividend, but Broadridge’s consistency in raising its payout for 10 years now — through both good and bad times — reveals its strong financial foundation. The fundamentals are definitely a check.
Technicals: BR has had a great 2017, up 35% as of Dec. 14. The stock is consolidating after trading to up a new all-time high, which is a bullish set-up for the next breakout to the upside.
It’s also worth noting that BR is currently right around $90, and when stocks trade at this level it typically leads to a push to the psychological $100 milestone. I believe it can climb there in the first quarter of 2018, and from there the potential is endless. Check.
Bottom Line on BR Stock
Broadridge easily checks all three of our criteria, which makes it the perfect pick for the Best Stocks for 2018 contest. I believe this is only the beginning of a long road to prosperity.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.