When you read the headline, my guess is that you thought that I’m simply going to provide you with a list of seven companies that ought to do well in February and beyond. I’ll provide that; however, my list of must own stocks for February is far from typical.
But before we dive into the intricacies, I want to point out that the S&P 500 dropped 8.4% in February 2020. That was the index’s second-worst monthly return last year. Only March was worse, down 12.5%.
February and March haven’t been great for stocks in recent years, averaging monthly losses of -1.4% and -3.36%, respectively, since the beginning of 2017.
This is why I’ve chosen to mix things up a little.
For my selections, I’m going to give you seven stocks whose stock symbol begins with the letter F. Each will have a market capitalization of $2 billion or more and be reasonably profitable.
- Fastenal (NASDAQ:FAST)
- Facebook (NASDAQ:FB)
- Four Corners Property Trust (NYSE:FCPT)
- FactSet Research Systems (NYSE:FDS)
- Federated Hermes (NYSE:FHI)
- Fair Isaac (NYSE:FICO)
- First Industrial Realty (NYSE:FR)
Given the trend for February, I’ve got my work cut out for me.
Must Own Stocks for February: Fastenal (FAST)
I went back into the vaults to find a story I’d written about Fastenal, the industrial distributor that got its start in fasteners in 1967. It has since expanded to a broader range of industrial and construction supplies.
It turns out, as best I can recollect, that I last discussed FAST stock in March 2012, almost nine years ago. I’m sure I’ve recommended it in recent years as part of a list of stock recommendations like this one; I can’t remember when.
In my 2012 article, I recommended investors holding its stock sell because it was trading at a nosebleed valuation.
“For investors who currently own the stock and have made a lot of money from it, the decision’s an easy one: Sell now before the whole world realizes that this type of business should never have an enterprise value 25 times EBITDA. For those who haven’t bought just yet, buyer beware,” I wrote on March 5, 2012.
I feel pretty good about that call. At the time, it was trading around $26. It didn’t trade above that level consistently until early 2019.
Now, almost nine years later, it trades around 23 times EBITDA, well above its five-year average of 16.
While not cheap, it’s got a few things going in its favor, including an excellent 24.9% return on invested capital, an operating margin above 20% and free cash flow that’s 101% of its trailing 12-month net income.
Oh, and it doesn’t hurt that it’s got some momentum heading into February.
No matter how one feels about social media platforms such as Facebook, there’s no way I could leave it off the list. Not quite a trillion-dollar market cap ($744 billion), it still commands a lot of attention from investors.
And so it should.
InvestorPlace’s Dana Blankenhorn recently discussed why it’s time to buy Facebook stock. Dana’s a technology guy, so I was curious to read his thoughts on the matter.
“Facebook is seen as a social network or a source of news. In fact, it’s a free global phone system, handling any type of communication – voice, video, text, software. Facebook’s cloud lets anyone be part of the global discussion, and the global market,” Blankenhorn wrote on Jan. 12.
He explains further:
“Because Facebook owns its cloud it pays no rent. Facebook doesn’t pay for the content on its cloud, either. Everything is built on cash flow from advertising. As a result, Facebook had just $10 billion in debt at the end of September, and almost $56 billion of cash and short-term investments.”
There aren’t many large companies in this day and age of low-interest rates with a net cash position of $46 billion. Further, its trailing 12-months free cash flow is $19.2 billion.
Based on an enterprise value of $736 billion, it’s got a reasonable free cash flow yield of 3.2%. By comparison, Twitter’s (NYSE:TWTR) is 0.6% based on $210 million in free cash flow and an enterprise value of $33.2 billion.
No matter what happens from a regulatory perspective, Facebook is going to be fine. Definitely buy FB on the dips.
Four Corners Property Trust (FCPT)
I have to admit that of all seven of the businesses on my list, Four Corners is the company I’m least familiar with.
The real estate investment trust is one of America’s largest owners of restaurant real estate with 751 properties across 46 states totaling five million square feet of leasable space to 74 restaurant brands. Most notably that list of brands includes Darden Restaurants’ (NYSE:DRI) Olive Garden and LongHorn Steakhouse brands.
The Darden Restaurants’ real estate was spun-off from the restaurants in November 2015. They account for 65% of Four Corners’ annual base rent. Other brands renting from the real estate investment trust include Burger King, Chili’s, Buffalo Wild Wings, Bob Evans and many more.
As its November 2020 presentation highlights, it had an occupancy rate of 99.6% at the end of September, with those properties holding average lease terms of 10.5 years and only 7% of its base rent expiring before 2027.
In October 2020, it announced a joint venture with Lubert-Adler Real Estate Funds to acquire up to $150 million in vacant real estate. It will then put growing restaurant operators into those spaces. This is a time-sensitive opportunity brought about by the novel coronavirus.
Since November 2015, it had grown its annual base rent from $94.4 million to $147.8 million on Sept. 30, 2020. More importantly, it has doubled its enterprise value in five years.
Yielding 4.6%, it’s a nice stable income investment with good capital appreciation attached to it.
FactSet Research Systems (FDS)
I don’t know why, but I often get FactSet confused with MSCI (NYSE:MSCI). While they both provide financial data analytics to the global investment community, MSCI is almost three times larger by market cap.
FactSet delivered Q1 2021 earnings on Dec. 21 and they surpassed analyst expectations. Its sales were $388.2 million on the top line, slightly higher than the consensus estimate and 5.9% higher than a year earlier. On the bottom line, it has earnings per share of $2.88, 14 cents clear of estimates and 30 cents higher than Q1 2020.
FactSet earns most of its revenue from subscriptions. As a result, the Annual Subscription Value, or ASV, and other figures related to ASV are critical to its success.
In Q1 2021, its ASV in the Americas increased by 5.6% to $959 million (based on the next 12 months). In Europe, the Middle East and Africa, its ASV increased by 4.7% to $422 million, and its ASV for the Asia Pacific region jumped by 9.5% to $143.9 million.
The number of users in the quarter increased by 5,187 to 138,238, while its client count rose by 64 to 5,939. FactSet expects 2021 revenue of at least $1.57 billion and adjusted EPS of $10.75 a share.
FactSet proves there continues to be plenty of money to be made providing data analytics to financial services companies.
Federated Hermes (FHI)
Federated Hermes is a Pittsburgh-based investment management firm with $615 billion in assets under management as of Sept. 30, 2020.
In July 2018, Federated Investors acquired majority control (60%) of London-based environmental, social and governance (ESG) investor Hermes Fund Managers. The businesses operated separately until February 2020, when the two businesses officially combined to become Federated Hermes.
“Federated has launched five mutual funds for U.S. investors modeled after Hermes products, has integrated Hermes’ ESG factors into the liquidity fund investment decision process, and is in the process of incorporating the same into Federated equity and fixed-income strategies,” the company stated in its Feb. 3, 2020, press release announcing the merger. “Federated also has launched a Responsible Investing Office and become a client of EOS, a leading stewardship and engagement business that has board- and executive-level engagement as its hallmark.”
The company recognizes that ESG investing is the future and has positioned itself to take advantage of this reality.
Federated Hermes hasn’t suffered under its transformation. Its latest Q3 2020 quarterly report saw revenues increase 7% over a year earlier and 1% over Q2 2020. On the bottom line, its operating income increased 27% over last year and 17% over the second quarter.
Business is so good that it paid a $1 a share special dividend on Nov. 13, 2020, in addition to its 27-cent quarterly payment.
According to CFO Thomas Donahue, “The special dividend reinforces Federated Hermes’ continued commitment to delivering shareholder value … The November dividend payment marks our fifth special-dividend, totaling $7.53 per share, in the last dozen years.”
If you want to feel special, Federated Hermes is the right one.
Fair Isaac (FICO)
Although Fair Isaac is probably best known for being the company beyond the FICO credit score, hence the stock ticker, it actually is so much more.
The company announced its Q4 2020 results on Nov. 10, 2020. They were excellent as usual, with 22.6% sales growth year over year to $374.4 million. On the bottom line, it had non-GAAP net income of $97 million ($3.25 per share), up 59.5% from $60.8 million ($2.01 per share) a year earlier.
I’m a hound for free cash flow, so the fact it grew FCF by 45% in fiscal 2020 to $342.9 million is indicative of just how good the past year was for Fair Isaac.
As I said, while the company’s Scores business is an important part of its business, accounting for 41% of its overall revenue, it has two other operating segments that also make a big contribution.
That’s especially true for its Applications segment, which accounted for 47% of its $1.29 billion in 2020 revenue. These pre-configured decision management applications include marketing, account origination, customer management, fraud and many others.
Its smallest segment, Decision Management Software, enables clients to create customized analytic and decision management software tools from scratch. While this segment only had $164 million in sales in 2020, it grew by more than 22% YOY and is an increasingly important part of its business.
While not cheap at 11 times sales, Fair Isaac’s long-term performance — the 10-year annualized total return of 35% — ought to give you comfort.
First Industrial Realty (FR)
The second of two REITs on my list, First Industrial Realty does what its name infers: it acquires, owns and manages U.S. industrial real estate.
First Industrial’s portfolio consists of 445 industrial buildings providing its 1,042 customers 64.1 million square feet of quality industrial space in 21 major markets across the U.S.
The REIT focuses on logistics-oriented properties. Founded in 1993, it went public a year later and has been publicly traded ever since. At the time of its IPO, it owned 226 industrial properties with 17.4 million square feet. It has grown considerably since then.
Its stock has had its highs and lows over the years. In 2009, it fell to as low as $2, but is now trading near its all-time high of $50.61 that it reached in November 2006.
In its Q3 2020 conference call with analysts, Chief Executive Officer Peter Baccile laid out some of its rental activity heading into 2021. The REIT expected a 14% increase in cash rental rates for the full-year in 2020. With 32% of its 2021 rollovers signed as of Oct. 23, 2020, the cash rental rates were up 12%.
Due to Covid-19, it was unable to launch any new development projects. Baccile stated in the conference call that it would begin the first phase of its First Park Miami project in the fourth quarter.
By full completion of the 60-acre property, it will be able to deliver 1.2 million square feet of industrial space, with the first phase — three buildings and 600,000 square feet — costing $90 million and a cash yield of approximately 5.5%.
As e-commerce continues to gain market share, First Industrial ought to benefit from this ongoing trend in retail.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.