It was hard to be disappointed with the stock market in 2017. After all, double-digit returns for the major indices are always a good thing to see.
Many of the catalysts that pushed the market higher in 2017 weren’t there for investors in 2018.
The “Trump bump” that came immediately after Election Day is the obvious example of a short-lived market trend that was important in 2017, but hasn’t had a material impact in the first half of 2018. Instead, the year has been marked by volatility. The difference between the average down day and the average up day for 2018 hasn’t been so stark since 1948!
Equally important, the Federal Reserve is stepping up the pace of interest-rate hikes now that the central bank has raised rates regularly and announced it will unwind its $4.5 trillion bond portfolio.
It’s not that the environment in Washington or the Fed don’t matter to investors anymore … they very much do.
The point is simply that situations on Wall Street, K Street and Main Street have all changed a great deal in the last year and will only get more complicated as we turn the page in 2018.
That’s why you need to be vigilant with your portfolio and focus only on high-quality investments that have massive potential and aren’t just riding high on the old trends.
You’ll find investments in this special report to help you do exactly that. Below, you’ll get my favorite picks in three crucial categories that every investor must consider right now:
- High-Potential Growth Stocks that could deliver 50%, 70% or even 100% gains in the second half of 2018
- High-Dividend Income Stocks that will offer guaranteed returns via dividends as high as 10% annually
- Low-Risk Bedrock Stocks that will protect your money, and are as close to it comes as a “sure thing”
There’s sure to be something here for every kind of investor. But of course, please do all your own research and make sure these trades are part of a well-balanced portfolio that keeps your long-term investing goals in mind.
And as always, please don’t hesitate to contact me with your own thoughts and trades at editor@investorplace.com.
Happy trading!
Must-Own Stock #1 – Salesforce
- Investment Type: High-Potential Growth Stocks
- Sector: Cloud Computing
- Buy Below: $150
“The cloud” isn’t just something old people yell at anymore — its where data are stored for millions of internet denizens. And it’s usage is growing. Right now, cloud computing is a battleground filled with a number of household names (think Amazon and Microsoft) and smaller players like Salesforce (NYSE:CRM). It’s here with the small fries that investors will find the largest gains.
That’s because Salesforce is what’s known as a “pure play” on cloud computing. A pure play company is one that focuses on a single business. As an investor betting on a specific trend, you benefit the most from the companies that derive the majority of their earnings from that trend.
Salesforce is a fast-growing business that is quickly making a name for itself with some of the most high-end customer relationship management products ranging in price from $25 to $300 per user. It’s no wonder CRM stock is expected to grow earnings at a 43% clip over the next five years (much better than the past five years’ 29%) and 71% this year alone.
And if you think the expectations are high, well, Salesforce as a knack for showing them up. In its previous quarterly report, CRM beat earnings estimates by 60.9%! Of the 25 analysts rating CRM stock, 23 have “Buy” recommendations at an average price target of $149.16 — 10.9% upside from current levels. And while Salesforce stock currently trades at an ultra high price-earnings ratio of 212, it only has to earn $2.71 to support a much more reasonable valuation of 40 times earnings, which analysts project will occur in 2020. Not too shabby.
Must-Own Stock #2 – Microchip
- Investment Type: High-Potential Growth Stocks
- Sector: Semiconductors
- Buy Below: $118
Most of the time when you hear about semiconductor stocks to buy, you hear about AMD or Micron. Microchip (NASDAQ:MCHP) is a lesser-known play on the semiconductor space, but MCHP stock has outperformed this year. Since the start of the year, Microchip’s stock has returned 3.6% versus 2.2% for semiconductors as a group. It’s not the sharpest return, but it’s been a volatile year so far. Over the past three years, MCHP stock is up 25% to semiconductors’ 22%.
The analysts agree. The average price target of $118.20 is a 31% premium to Microchip’s current level. The bullishness of late comes as a result of Microchip’s acquisition of Microsemi. Jim Kelleher of Argus believes that the buyout will “drive margin expansion” at the company, while JPMorgan’s Harlan Sur is bullish on the overall demand for semiconductors and the synergies from MCHP’s Microsemi deal.
Considering MCHP is trading at 87 times earnings right now and the semiconductor index trades at 20 times earnings, Microchip would need to earn $4.51 per share to support its valuation. Easy, as analysts peg Microchip at a $7.52 per share by 2020 — a P/E of 12!
Must-Own Stock #3 – PayPal
- Investment Type: High-Potential Growth Stocks
- Sector: Fintech
- Buy Below: $90
What can you say about the brainchild of Peter Thiel and Elon Musk that hasn’t been said a thousand times in the media already? The founding members of the company have since become known as “The PayPal Mafia” as they’ve become some of the richest men Silicon Valley has to offer.
Even if you think PayPal’s service is past its heady “cool” days, Venmo, a PayPal-owned company, is seeing an enormous amount of growth from millennials thanks to its Instagram-like social features. Payment volume at Venmo increased by a whopping 97% to $35 billion in 2017. It turns out people really, really like sharing things. Even how much they spend!
Then there’s Hyperwallet, a payments company PYPL recently purchased for $400 million. Stephens analyst Brett Huff sees Hyperwallet helping PayPal to crack desirable international markets. Hyperwallet, for those that don’t know, is a global payout platform. Buying this company essentially puts PayPal right in the middle of hundreds of marketplaces around the world. More than 200 markets to be exact.
With a consensus price target of $90.61, PYPL stock has double-digit upside from its current perch and 15 “Buy” ratings in the last month alone. Considering the growth opportunity ahead for PayPal, it’s long-term growth rate of 23% actually looks quite conservative.
Must-Own Stock #4 – FireEye
- Investment Type: High-Potential Growth Stocks
- Sector: Cybersecurity
- Buy Below: $20.60
After the data breach at Equifax in the fall of 2017, security plays are looking better than ever in 2018. And one stock particularly worth looking at is one-time momentum darling FireEye, Inc. (NASDAQ:FEYE).
Sure, shares are still over 70% below their peak of $80 immediately after a late 2013 debut on Wall Street. But overenthusiastic traders who may have gotten ahead of themselves — as can happen with tech IPOs — were right about the long-term promise of this company, even if they overbid the stock during its early days of trading.
Amid constant hacking concerns for corporate America and the U.S. government, cybersecurity will remain a hot topic for some time. And hot topics always lead to big M&A targets, particularly among private equity firms. With a valuation that’s still under $3 billion, this is a pretty digestible play for the big boys out there like Cisco Systems, Inc. (NASDAQ:CSCO) and Intel Corporation (NASDAQ:INTC) that have a focus on security software these days.
Private equity is sitting on record cash right now, and the big players in the space constantly mention FireEye. FEYE could easily be worth at least $30 a share when you bake in a buyout premium. But even if acquisition rumors don’t bear out in the short-term, FireEye is making big strides to prove its standalone power. For instance, a recent quarterly report showed that roughly $9 out of every $10 in revenue was derived from subscription and service sales — a theoretically recurring business that sets a great foundation for FEYE stock.
Admittedly, the company is not yet profitable as it invests heavily in growth. But it has a nice cash cushion and it has plenty of will to succeed, making it a higher-risk but higher-reward investment in the tech sector.
Must-Own Stock #5 – Omega Healthcare
- Investment Type: High-Dividend Income Stocks
- Sector: Healthcare REIT
- Buy Below: $32.50
Moving on to the income-oriented investments on this list, I’ll point out that many investors feel there’s a choice to be made between a big dividend now or the hope of future payout growth later.
Well, Omega Healthcare Investors, Inc. (NYSE:OHI) manages to do both of those things — proving you don’t have to choose between getting paid now or getting paid later. Omega has raised its dividend every year since 2003 — 20 consecutive quarters. Over the last 10 years, the real estate investment trust (REIT) has raised its dividend at an annualized clip of 9.5%-per-year.
It also yields nearly 10% at current prices!
The high growth and powerful dividend is easy enough to understand when you dig into the business. OHI is a landlord specializing in skilled nursing and senior living facilities, and America is an aging country. When you consider that the baby boomers are just now entering the stage of life where senior care is a need, there’s a lot more growth where that came from.
As for the high yield, this is a valuation issue. The market is extremely wary of any company that depends on reimbursement from Medicare or Medicaid, as — in case you hadn’t noticed — our government is broke and looking to cut corners. So, Wall Street has pushed down the stock prices of many skilled nursing REITs, which pushes their yields higher.
But there are two things most investors are missing: First, the continued saber rattling about healthcare reforms have gone nowhere — and second, Omega is a landlord and not really a true Medicare service. If Uncle Sam ever cuts back on the profits of some of Omega’s tenants by putting the screws to Medicare spending — something that is far from a sure thing — that’s not really an issue for OHI stock. So long as its tenants are able to make the rent payment, Omega could care less about profit margins shrinking for doctors or outpatient surgery centers.
The combination of overly negative sentiment that has depressed prices and the long track record of continued dividend growth makes this income investment too good to pass up in 2018.
Must-Own Stock #6 – Enterprise Products
- Investment Type: High-Dividend Income Stocks
- Sector: Energy Pipelines
- Buy Below: $30
Oil and gas pipeline operator Enterprise Products Partners L.P. (NYSE:EPD) got a bad rap in 2017 as energy prices remained low and pressure was seen across the industry. However, that’s largely because many investors don’t understand what this partnership has to offer.
For starters, EPD is not an exploration company but a “midstream” company that just transports and stores oil and gas. As a glorified toll-taker, it is much more insulated from volatility in actual energy prices.
Furthermore, while many oil and gas companies have been dealing out junk bonds like candy in recent years, Enterprise Products Partners has been more responsible and kept its debt load manageable; its total long-term debt has grown in the low single digits over each of the last few years, even as other companies have been stretched incredibly thin.
At the same time, EPD has been a remarkably consistent grower of its distributions, with an annual increase of about 5% over the last 10 years, regardless of how cheap or expensive oil is.
This plain but well-run company is committed to keeping its balance sheet in order and delivering long-term income potential to investors, instead of the “feast or famine” approach you see in more aggressive energy stocks.
And with a yield over 6%, you can afford to suffer a bit of short-term volatility if it means coming out ahead at the end of 2018 thanks to those big payouts.
Must-Own Stock #7 – Life Storage
- Investment Type: High-Dividend Income Stocks
- Sector: Public Storage
- Buy Below: $89.00
Life Storage, Inc. (NYSE:LSI) is a stock you’d be forgiven for ignoring. It’s a rather boring company that operates storage locker facilities; it’s also a rather small company that boasts a market capitalization of less than $4 billion.
But when you’re looking for reliable dividend payers, boring is often a good thing. After all, as long as the millions of Americans stashing extra furniture and boxes in Life Storage facilities remember to pay their bills each month, this storage play doesn’t have to be a household name.
The company is expanding slowly and steadily, with three-quarters of a billion in cash and firm revenue growth. Furthermore, with LSI structured as a real estate investment trust like Omega Healthcare, there’s a mandate for big dividends as the company must return the lion’s share of its taxable income back to shareholders.
The icing on the cake is that it’s a pretty recession-proof investment in case you’re worried about a downturn in the next few years. If folks are forced to downsize out of that McMansion when times get tough, they are likely to get a unit from Life Storage to keep all the excess stuff instead of simply throwing it away. This counter-cyclical angle to LSI stock helps ensure the dividends will keep rolling, in both good times and bad.
And with a yield that’s twice what T-Notes offer at roughly 5%, the dividends are not just a sweetener but a good way to drive your total portfolio returns in 2018.
Must-Own Stock #8 – AT&T
- Investment Type: Low-Risk Bedrock Stocks
- Sector: Telecommunications
- Buy Below: $40.00
You can’t get more entrenched than AT&T (NYSE:T). Or can you? After winning approval for a mega-merger with media conglomerate Time Warner (NYSE:TWX), AT&T can take its existing and dominant business model to the next level, making sure rivals such as T-Mobile (NASDAQ:TMUS) can’t do anything to erode its existing wireless market share.
Case in point: in late 2017, we already saw AT&T put a hefty focus on bundling and streaming top-rated shows to customers. With the Time Warner deal finalized and properties like HBO formally under the corporate umbrella, you can expect this trend to continue in earnest and really squeeze out the competition.
And this comes after an already ambitious move with its purchase of DirecTV in 2015!
This telecom company aims to span your communications experience soup-to-nuts, by offering exclusivity on insanely popular programs like Game of Thrones as well as controlling conventional television and 21st-century streaming distribution channels.
Some media or telecom companies are cash cows based on the sheer momentum of their old model. And some up-and-comers are ambitiously growing based on where the future of streaming and wireless are headed. AT&T has a foot planted firmly in both worlds, and as such, it is sure to be a big player no matter what.
With shares trading at a fair valuation that’s on par with the rest of the market and a 5% dividend as a sweetener, it’s hard to see how you lose owning this stock in your portfolio. It may not be as dynamic as some of the other names on this list, but AT&T is assuredly going nowhere but up in the years to come.
Must-Own Stock #9 – Pfizer
- Investment Type: Low-Risk Bedrock Stocks
- Sector: Pharmaceuticals
- Buy Below: $37.00
Pfizer, Inc. (NYSE:PFE) isn’t quite the typical bedrock stock since it’s prone to short-lived bouts of volatility on news about its drug pipeline. However, a bad quarter here and there can’t hold this stock back over the long-term — and as one of the most dominant healthcare names on the planet, you can be sure it will be a valuable part of your portfolio in the second half of 2018 no matter what happens.
Pfizer has some of the biggest drugs on the planet in products such as Prevnar, Lyrica and Lipitor. However, it also has a little bit of consumer health mojo to stay stable — including consumer brands such as Advil, and even a thriving generics business to hedge against the need for patent-protected products.
Of course, those patented blockbuster medications are called blockbusters for a reason. Earlier in 2018, the debut of its breast cancer drug Ibrance catapulted the stock to new highs and it is sure to pay off for many years to come.
Oh, and should Pfizer’s pipeline get stale? It has about $20 billion in cash and investments to throw at smaller biotech companies so it can gobble up potential cures and then market them using its tried-and-true methods.
The 3.5% dividend isn’t as robust as some of the other companies on this list, but taken alongside its strong balance sheet and the recession-proof nature of healthcare (consumers cut back on just about everything else before forgoing medical needs), PFE stock is a slam dunk for the rest of 2018 — and beyond.
Must-Own Stock #10 – American States Water
- Investment Type: Low-Risk Bedrock Stocks
- Sector: Water and Wastewater Utility
- Buy Below: $61.00
Utilities are often the go-to choice for low-risk investors. And while American States Water Co. (NYSE:AWR) has a slightly higher valuation and a lower dividend yield than some of your tried-and-true utility options, it’s an important play for low-risk investors because of its focus on water and sewer infrastructure instead of electricity.
As water issues increasingly become a concern, particularly in drought-plagued California, where the company is based, there is actually growth in this sector as well as stability. The icing on the cake is the fact that American States Water has increased dividends annually for 63 years — the longest streak of any publicly traded company — and it will continue to deliver reliable payouts on reliable revenue for a long time, no matter what happens in the second half of 2018.
There’s a lot of uncertainty around the specifics of energy right now, including the fate of nuclear and coal power generation as well as the current state of our nation’s not-so-stable electrical grid. But one thing that will never be in question is the fact that all Americans need reliable sources of clean water!
After the debacle in Flint, Mich., laid bare the problems of many aging municipal water systems, many communities are open to private solutions to this public health concern. That has created a big opportunity for AWR stock. But, most importantly, for investors looking at low-risk stocks, those contracts tend to be entrenched with many years of service and little chance of outside competition.
It all adds up to as close to a “sure thing” as you’ll find on Wall Street in 2018, regardless of economic climate or market sentiment.
