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Some investors believe that it is a mistake to own stocks as their retirement draws near. However, the Social Security Administration estimates that today's average 65 year old will live for 20 more years, which is why we Fools think that it is a mistake to forgo the stock market altogether in your golden years. After all, well-chosen stocks can provide investors with both near-term income and long-term growth potential, giving their portfolio a better chance of staying ahead of inflation.
Of course, not every stock is a good choice for investors in their 60s. In general, older investors should favor businesses that are stable and offer a good mix of income, growth potential, and value.
Here's a list of three stocks I think fit those criteria perfectly.
Pfizer(PFE -0.19%)
It is hard for me to think of a big pharma company in a better position to provide long-term growth than Pfizer (NYSE: PFE). The company has gone through a remarkable turnaround since it lost patent protection on its cash-cow cholesterol drug Lipitor in 2011. After a few years of downsizing and building out its product portfolio, Pfizer looks primed for revenue and profit growth.
Pfizer now boasts a stable of hit drugs with rapidly growing sales. They include the breast cancer drug Ibrance, the blood thinner Eliquis, the pneumococcal vaccine Prevnar 13, and the rheumatoid arthritis drug Xeljanz. Adding these newer drugs to its legacy portfolio helped push Pfizer's revenue up 11% last quarter to more than $13 billion. In addition, the company's robust share-repurchase program pushed adjusted EPS upward by an even better 14%.
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Pfizer has also successfully used its financial might to make tuck-in acquisitions that should keep its top-line growing in the future. Last year, it spent $17 billion to acquire Hospira, a move that made the company a leading player in the burgeoning biosimilar market. A few months back, it shelled out $14 billion to get its hands on Medivation (MDVN), a cancer-focused biotech that has been growing fast.
Add it all up, and Wall Street is projecting that Pfizer will be able to grow its bottom line by more than 6% annually over the next five years. That's a solid growth rate for a stable company that offers up a 3.5% dividend yield and is trading for less than 13 times next year's earnings.
Home Depot(HD -1.77%)
Many retailers are still struggling to adapt to a world where consumers are shifting more of their shopping online, but home improvement giant Home Depot (NYSE: HD) isn't feeling any of the pain. The company continues to attract droves of customers to its stores, which helped drive same-store sales growth of 4.7% last quarter. That's a result that most retailers would kill for.
Better yet, Home Depot is using the shift to e-commerce as an opportunity to make its business even stronger. The company has built out a number of dedicated fulfillment centers that help to get customers the products they want quickly. In addition, customers can return unused or unwanted products directly to one of its stores, which eliminates the return shipping costs. That gives it a big competitive advantage over pure-play e-commerce rivals like Amazon.com.
It looks like these investments are paying off. Last quarter, online revenue grew by 19%, and it now represents nearly 6% of total sales.
Market watchers believe that Home Depot will be able to grow its bottom line by nearly 14% annually over the next five years, which is a strong growth rate for a company of this size. Add in a dividend yield of 2.1% and I think this is a great stock for investors who want growth, income, and stability.
MasterCard(MA -0.07%)
Did you know that roughly 85% of global transactions still occur using either cash or check? That's a statistic that shocked me the first time I heard it, since I've been paying primarily with plastic for years. And yet, that number suggests that payment processors have decades of growth ahead of them as they convince consumers and merchants alike to switch to electronic payment methods, and one great way to play that trend is with MasterCard (NYSE: MA).
Mastercard is one of the biggest debit and credit card issuers in the world, with more than 2.3 billion cards in circulation. With each passing quarter, more and more consumers are shifting toward electronic payment methods, which is driving the company's top-line up by double-digits.
That strong incremental growth is working out wonderfully for investors since it doesn't cost Mastercard much to process one more transaction. That allows the company to turn an ever-increasing share of its revenue into profits, and its share-repurchase activity means its EPS is growing at a far faster rate than revenue. That's a trend I think can continue for years to come.
MA Revenue (TTM) data by YCharts
Wall Street is projecting that MasterCard's EPS will grow in excess of 15% annually over the next 5 years. While shares are a bit pricey at nearly 30 times trailing earnings, I think the predictability of this business and its strong long-term growth prospects make it an ideal holding for older investors.
