Holding individual stocks can be exciting and financially rewarding. But finding the best stocks is easier said than done, and all too many promising stocks come with increased volatility and risk.
So we asked three top Motley Fool contributors to each pick a safe stock they believe investors would be wise to buy right now. Read on to see why they chose Mastercard (MA -1.19%), Check Point Software Technologies (CHKP 0.18%), and General Motors (GM -0.05%).
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Benefit from an increasingly cashless world
Steve Symington (Mastercard): Mastercard released a decidedly unexciting quarterly report late last month. But that should be music to conservative investors' ears. Revenue grew 9.5% year over year, to $2.76 billion, technically falling just short of the 11% growth Wall Street was anticipating. Gross dollar volume also rose 9% at constant currency, excluding EU regulatory changes, while net income climbed a more modest 5%, excluding special items. But thanks to a combination of share repurchases and effective cost management -- operating expenses declined 1% year over year -- Mastercard still managed to grow earnings per share 9%, to $0.86, a penny per share above expectations.
But more pertinent to this discussion is that Mastercard's results were aided by improving economic activity across most of its geographic markets. During this quarter's conference call with investors, management highlighted that post-election optimism in the U.S. remains relatively high, with consumer confidence, unemployment, and wages appearing to hold steady. And according to Mastercard CEO Ajay Banga, the ongoing economic recovery in Europe has proved "persistent" over the past year, led by Germany and -- perhaps counterintuitively -- supplemented by stronger growth in travel to the UK given the weaker pound following last year's Brexit vote.
On the other hand, consumer and business confidence in Australia is weak, and Brazil is only just crawling out of a deep recession that should help spur Mastercard's business there. The company is also taking a cautious view of Asia, given a prolonged slowdown in China. But it sees potential for government economic policies in India to help modernize the cash-reliant country's payment systems over the longer term.
To that end, Banga also reminded investors that in the retail business alone, 85% of the world's retail payments are still in cash and check. That's not to mention Mastercard's emphasis on increasing its share in commercial payments, and its faster-growing services business -- which includes safety and security, consulting, information services, data analytics, and loyalty and rewards programs -- leaving the company with a long runway for growth over the next decade.
Add to that its modest dividend yielding around 0.8% annually as of this writing, and I think Mastercard represents a compelling portfolio candidate for investors looking for an attractive combination of growth potential and relative stability.
Safety? Check.
Tim Brugger (Check Point Software): With its stock up 12% since it announced fourth-quarter and 2016 earnings on Jan. 19, Check Point may not seem like an ideal choice for a list of safe stocks to buy now. However, the reasons Check Point has finally caught investors' eyes is why it warrants inclusion.
Last quarter was indicative of what to expect from Check Point. Unlike many of its peers, Check Point doesn't spend indiscriminately, and shareholders benefit with continued growth on its bottom line. Last quarter, the company reported revenue of $487 million, a 6% year-over-year increase. However, earnings per share (EPS) rose 21% to $1.31, including one-time items. Check Point's EPS excluding one-time expenses also climbed 21% to $1.46.
CEO Gil Shwed's steady-as-she-goes business model also includes delivering on Check Point's annual recurring revenue (ARR) initiative via its software subscriptions. Last quarter, subscription-driven ARR sales climbed a whopping 26% to $110 million. For the 2016 fiscal year, ARR jumped 22% to $390 million of Check Point's $1.74 billion in total revenue, and that trend shows no signs of slowing.
There are a couple of reasons that Check Point's focus on recurring revenue, particularly when combined with its stringent cost-management efforts, makes it ideal as a safe stock pick. First, it simply costs less to service existing, subscription-paying customers than to rely on new sales. Second, the relatively stable, and still growing, revenue translates to a reliable foundation investors can count on. That certainly beats the wild swings some of Check Point's peers deal with, and is why it's a safe stock to buy now.
Head on down the highway with this stock
Dan Caplinger (General Motors): The auto industry has done extremely well in recent years, posting record sales results in 2015 and 2016. General Motors has taken full advantage of the industry's success, having emerged from bankruptcy following the financial crisis to rebuild its automotive empire.
General Motors has several favorable conditions right now that give it a margin of safety. First, the company trades at a ridiculously low valuation of just four times trailing earnings, reflecting the expectation that a cyclical downturn in the automotive industry will inevitably send its bottom line lower. Yet even if profits come in at the company's 2017 forecast of $6 to $6.50 per share, General Motors would still sport an extremely favorable valuation compared to most stocks in the market. Moreover, GM's dividend yield of more than 4% gives investors added incentive to hold on to the stock.
Some have also noted the potential political risk involved with General Motors, given that it manufactures vehicles not only in the U.S. but also around the world. Yet so far, the Trump administration has had open dialogue with automakers such as GM, and CEO Mary Barra seems optimistic that a favorable solution can be reached. With good long-term prospects, General Motors looks like a good bargain right now.
