Investors looking for stocks to buy should head south to Texas.
One of the big reasons Tesla (NASDAQ:TSLA) left California was the high cost of housing. That being said, the company’s move to Texas is more likely about the fact it’s building a battery and manufacturing facility there. It would also be naive to think it isn’t all about cheap labor and fewer regulations. Elon Musk is known to be someone who hates being regulated. Just ask the SEC.
However, the reality is that a large contingent of tech companies have either operated in Texas for many years, moved there recently, or are planning to relocate to the Lone Star State. According to the 2021 Fortune 500, there are 25 companies headquartered in Texas. Although many are energy-related, there are several that make a living outside fossil fuels.
Here are 10 top Texas stocks to buy that don’t rely on oil and gas for big gains:
- McKesson (NYSE:MCK)
- AT&T (NYSE:T)
- Sysco (NYSE:SYY)
- Kimberly-Clark (NYSE:KMB)
- Oracle (NASDAQ:ORCL)
- Texas Instruments (NASDAQ:TXN)
- CBRE Group (NYSE:CBRE)
- D.R. Horton (NYSE:DHI)
- Waste Management (NYSE:WM)
- Fluor (NYSE:FLR)
These stocks span a variety of sectors and industries, with choices for risk-seeking and risk-averse investors alike. All 10 look set to bring in strong returns that will keep shareholders happy.
Texas Stocks to Buy: McKesson (MCK)
Based in Irving, Texas, McKesson is a leading drug wholesaler. In addition to its U.S. business, it also distributes pharmaceuticals in Canada and Europe.
As a Canadian company, McKesson came into view in March 2016, when it offered to buy Edmonton-based Rexall Health from the Katz Group for $1.9 billion, including $300 million in cash tax benefits.
Hockey fans in Canada may be familiar with Rexall because former owner Daryl Katz bought the NHL’s Edmonton Oilers in 2008 for 200 million CAD ($161.5 million) and still owns the team.
However, when McKesson bought Rexall in 2016, it had more than 470 pharmacies, strengthening its grip on the pharmacy market in Canada.
In the trailing 12 months (TTM), McKesson had free cash flow (FCF) of $3.3 billion, revenues of $245.2 billion, an FCF margin of 1.3% and an FCF yield of 10.2%.
I consider an FCF yield above 8% to be in value territory.
I didn’t want to put AT&T on this list, but the combination of sector diversity and potential returns made the Dallas-based wireless carrier too good to leave out.
The company reported reasonably good Q3 2021 earnings on October 21 — revenue of $39.9 billion and adjusted earnings per share of $0.87, 11 cents higher than Q3 2020 — but as Barron’s reported, investors hate the high-yield stock for a reason.
“The company is in merger limbo, and there is considerable hate from the investor community for the ride that management has taken shareholders on,” Barron’s contributor Nicholas Jasinski wrote on October 21. “That includes a pair of enormous acquisitions and subsequent divestments in less than a decade, a coming dividend cut, strategic shifts, and poor stock returns over the years.”
A $10,000 investment in T stock 15 years ago would be worth $15,444 today. That same investment in the S&P 500 is worth $33,253, more than twice as much.
In July 2018, I discussed the seven reasons why AT&T was going to blow the Time Warner merger. Less than four years later, that prophecy quickly came to pass.
Aggressive investors might choose to place a bet based on mean reversion. However, everyone else ought to forget about the high yield and focus on its core business.
I’ve never thought of Sysco as a Texas company. Maybe because you see the foodservice distributors’ trucks in every major city in the U.S. and Canada. It’s as if it’s from everywhere and nowhere at the same time.
Sysco’s reliance on the hospitality industry and restaurants hurt the company during the pandemic, but it seems to have rebounded rather nicely in 2021.
On August 10, Sysco reported its Q4 2021 results. Sales were up 82% versus Q4 2020 and 4.3% from Q4 2019. In addition, its operating income in the fourth quarter was $569.7 million, 207.2% higher than Q4 2020.
Overall for fiscal 2021, sales declined by 3.0% over last year to $51.3 billion. They were down 14.7% compared to 2019. Its adjusted operating income was $1.5 billion, 14.7% less than in 2020.
However, it raised its earnings per share guidance for 2022 to $3.43 at the midpoint, up from $1.44 in 2021. As a result, its outlook for 2022 is 23 cents higher than its earnings in 2019.
Up more than 9% over the past three months, barring a real Covid-19 setback, I would expect a significant move higher in 2022.
Kimberly-Clark is one of those companies that you think would do well in any economic environment. Yet KMB seemingly always underperforms both its peers and the markets.
Over the past five years, KMB stock has had an annualized total return of 4.9%, 530 basis points less than the Household & Personal Products industry and 1,368 basis points less than the wider U.S. markets.
However, due to rising input costs and a slowdown in demand for toilet paper, the company’s sales and earnings have weakened in 2021.
In the first six months of 2021, sales declined 2% through June 30 to $9.47 billion. On the bottom line, KMB’s adjusted earnings were $1.47, 33% less than its earnings through the first half of 2020.
The reality for Kimberly-Clark shareholders is that you have to pick your entry points very carefully. That’s because, between 2016 and 2020, the company’s compound annual growth rate was 1.2%. At the same time, its compound annual growth rate for net income over the same period was slightly better at 2.1%.
Shopify (NYSE:SHOP) grows its top and bottom line by those numbers each week.
If you buy KMB now, you’ll want to put some money to buy some more when it’s trading closer to $100.
Investors would be forgiven for forgetting that Oracle moved its headquarters from Silicon Valley to Austin in December 2020, just before the novel coronavirus pandemic. The company said it made the move to allow greater flexibility for its employees and where they want to work. However, I think it’s safe to say lower taxes had a lot to do with it.
Year-to-date in 2021, Oracle stock is up 54% through October 22, considerably higher than both its software infrastructure peers and the markets as a whole. However, go farther back and the performance gets a little more shaky.
In the most recent quarter, its results were a mixed bag. While sales rose by just 4% year-over-year, IaaS (Infrastructure as a Service) and SaaS (Software as a Service) cloud platforms accounted for 25% of its $9.7 billion in total revenue. Over 12 months, ORCL generated $10 billion in revenue from those two cloud businesses.
“Oracle’s two new cloud businesses, IaaS and SaaS, are now over 25% of our total revenue with an annual run rate of $10 billion. Taken together, IaaS and SaaS are Oracle’s fastest growing and highest margin new businesses,” stated CEO Safra Catz. “As these two cloud businesses continue to grow they will help expand our overall profit margins and push earnings per share higher.”
It is for this reason that Oracle stock has come alive.
Texas Instruments (TXN)
If I could only buy one Texas stock, TXN would be it. The maker of analog chips and digital signal processors, not to mention its namesake TI calculators, has gained a reputation for exceeding expectations and delivering shareholder returns.
The 32 analysts currently covering TXN stock aren’t so sure about it. They rate the stock a “Hold” with a median target price of $200, only a couple of dollars above its current share price.
As someone big on free cash flow, I couldn’t ask for a better quote than what’s on Texas Instruments’ investor relations home page.
“The best measure to judge a company’s performance over time is growth of free cash flow per share, and we believe that’s what drives long-term value for our owners,” states CEO Rich Templeton.
The company’s TTM FCF is $6.49 billion. That comes out to an FCF margin of 38.7% and an FCF yield of 3.5%. That isn’t cheap. However, over the past 16 years, the company has grown its FCF by 12% a year.
It’s that growth that’s allowed Texas Instruments to grow its dividends by 26% annually over this period with 18 consecutive years of dividend increases. At the same time, it’s reduced the number of outstanding TXN shares by 46% over the past 16 years.
Texas Instruments values capital allocation over all else. What’s not to like?
CBRE Group (CBRE)
When it comes to commercial real estate, CBRE is a world leader in providing services such as leasing, property sales, property management and valuation. And just because fewer people are working in offices full-time doesn’t mean the company isn’t busy.
In September, CBRE announced that it had a 23.7% market share for global commercial real estate investment sales in the first half of 2021. So whether we’re talking office, hotels or multifamily, CBRE is number one.
In the end, businesses of all sizes need good advice about their commercial real estate needs. CBRE provides this on a global basis while headquartered in Dallas.
In the first half of 2021, CBRE’s revenue increased 9.7% to $12.4 million. Its operating profit more than doubled to $635.6 million. In Q2 2021, #375 million in FCF was 363.1% higher than in the second quarter last year. Its TTM FCF is $1.8 billion, the highest it’s ever been.
If real estate’s your game, CBRE stock is an excellent long-term buy.
D.R. Horton (DHI)
Although America’s largest homebuilder by volume since 2002 has operations in 30 states across the U.S., it calls Arlington, Texas, home.
The homebuilder got its start in 1978, going public in 1992. In fiscal 2021, it expects to have closed on at least 81,300 homes, 24% higher than in 2020. As a result, revenues should grow 35% YOY to at least $27.4 billion. Despite the supply chain issues, it still ought to produce its best year on record for operating income.
The 20 analysts who cover its stock rate DHI “Overweight” with a median price target of $109, more than 20% higher than its current share price.
DHI holds the number one market share in all of its top five markets save for Phoenix (Dallas, Fort Worth, Houston, Atlanta and Austin). In fact, D.R. Hoston is number one in 15 markets across the U.S.
If you’re concerned about housing affordability, 59% of homes the company closed in the year ended June 30 were less than $300,000. A majority of its homes (91%) sell between $200,000 and $500,000.
Waste Management (WM)
You wouldn’t know it by the company’s investor relations site, but this waste management colossus got its start through the hard work of Wayne Huizenga, an entrepreneurial sort who built three Fortune 1000 companies over his career: Waste Management, Blockbuster Entertainment and AutoNation (NYSE:AN).
Huizenga also owned the Miami Dolphins, Florida Marlins (now the Miami Marlins) and the Florida Panthers at one time or another, but I digress.
Today, Waste Management’s largest shareholder is Bill Gates, who owned 8.3% of WM stock as of March 17. Ironically, Gates also owns 17% of AutoNation, one of Huizenga’s other big businesses.
As for Waste Management, its TTM FCF of $2.54 billion is higher today than at any time before or during the pandemic and the company continues to deliver consistent results. That’s led to strong shareholder returns over the years. Its 10-year annualized total return is 18.3%, higher than both its waste management peers and the entire U.S. market.
WM is a stock you throw in a drawer and forget about.
If you bought Fluor stock during the March 2020 correction and are still holding, you’re probably delighted with your investment. FLR stock is up approximately 231% since its March 20, 2020 lows. The S&P 500 is up 97% over the same timeframe. However, FLR is down 64% over five years compared to a 114% gain for the index.
Timing is everything.
Fluor provides engineering, construction and other professional and technical solutions to businesses worldwide.
In January, FLR launched a new corporate strategy that focuses on driving growth outside its traditional stronghold in oil and gas, pursuing more rewarding contracts for the company, solidifying its balance sheet and building a better, more sustainable corporate culture.
Fluor has adjusted earnings per share of 39 cents on $6.2 billion in revenue through the first half of the year. It expects to earn 70 cents in fiscal 2021 at the midpoint of its guidance. That’s down considerably from its 2018 EPS of $1.59.
It’s going to take a few quarters for the new strategy to take hold. Nevertheless, aggressive investors ought to consider a bet on Fluor today, while its share price is still under $20.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.