Relax folks. The sky isn't falling. It's unfortunate that recent economic data show growth is slowing and that Standard & Poor's chose to downgrade the credit rating of the U.S. from its pristine AAA rating down to AA+; but things could be a whole lot worse.
History has shown that losing a AAA credit rating isn't exactly a death sentence. In fact, when Canada and Japan lost their perfect credit marks, their stock markets actually rose over the following year. Another thing to consider is that many companies have more cash in their coffers than at any time in recent history. Recent data compiled from Standard & Poor's detailed that 444 companies raised their dividend payouts in the second quarter. Now is not the time to panic -- it's the time to be looking for bargains.
With that in mind, I set out with the task of finding companies that you could buy right now instead of running for the hills like everyone else. The criteria I used to seek out these top companies are as follows:
- Market capitalization greater than $1 billion.
- Beta < 1.00.
- Dividend yield > 1.5%.
- Revenue growth rate (3-year) > 15%.
- Gross margin > 40%.
To find stable companies we need a balance of growth, strong cash flow, and solid margins. Using the Motley Fool CAPS screener, these criteria whittled thousands of stocks down to these 16:
Rev. Growth Rate
(Past 3 Years)
|Anheuser-Busch InBev (NYSE: BUD )
|Dupont Fabros Technology
|El Paso Pipeline Partners
|Frontier Communications (NYSE: FTR )
|J.M. Smucker (NYSE: SJM )
|Merck (NYSE: MRK )
|Newmont Mining (NYSE: NEM )
|Progressive Waste Solutions
|Quality Systems (Nasdaq: QSII )
|Spectra Energy Partners
|Teva Pharmaceutical (Nasdaq: TEVA )
Source: Motley Fool CAPS.
Of these 16 companies, I excluded five oil pipeline companies since they are too reliant on the price of oil, as well as Frontier Communications in the telecom sector since I don't particularly care for its large debt load and stagnant organic growth. Left with 10 possible choices, six stood out as companies you could buy right now! These companies offer the potential for dividend growth, have ample cash to weather any economic environment, and turn big profits with minimal expenses while offering less volatility than the S&P 500 -- the perfect recipe for a successful portfolio.
Think about it; whether the economy is good or bad, consumers are going to buy beer -- and no name is more prominent in the beer industry than Budweiser in the U.S. Beyond our borders, the company has approximately 200 brand names under its belt. For a company as large as this, it might seem impossible for its long-term growth rate to reach almost 15%. But considering its global marketing approach and loyal customer base, this seems easily achievable.
Companies in the food sector aren't impervious to recessions, but they often handle downswings much better than many other sectors. J.M. Smucker's products, for example, are easily recognizable by consumers and often occupy the median price-point on supermarket shelves, meaning it has a considerably more loyal customer base than many of its peers. It's no wonder Smucker's shareholders have been privy to 10 consecutive years of dividend increases.
Slow and steady wins the race, as Merck shareholders would probably agree. While not growing by leaps and bounds, Merck's combination of pharmaceutical therapies and personal care products has yielded an incredible gross margin of 78.9%. Even more impressive than its ability to get the most out of every dollar has been its dedication to shareholders. Aside from a special dividend in 2003, shareholders haven't seen a drop in their quarterly payout since 1988.
There are always going to be skeptics crying for the market's demise, so why not protect yourself by owning the new "fear hedge" -- gold. Newmont Mining is the face of the gold mining sector in that it was the first company to float its quarterly dividend payment in accordance with the spot price of gold. Not only will investors benefit from the rising price of gold created from market uncertainty, but they will also likely see ballooning dividend distributions.
You want growth? You'll get it by the handful with Quality Systems, a developer and marketer of health-care information systems. Very few fields are growing as quickly as the health-care sector, boosting the need for the technology used to sort out a seemingly endless amount of data. The company has surpassed consensus expectations for three consecutive quarters and boasts a long-term growth rate in excess of 20% while still paying out a healthy dividend. Despite trading near a 52-week high, this appears to have plenty of room left to move higher.
What better company to invest in than a generic-drug producer? With pharma's most impervious pipeline, Teva currently has a drug portfolio consisting of more than 1,300 molecules, with countless patents pending worldwide. The economy doesn't care if patients are sick or not, making Teva's business is a near-certainty to grow over time. Having grown its dividend annually at nearly 25% over the past five years, and with a 63.3% gross margin, Teva should be raking in the cash for years to come.
Be the prowler, not the prey
Trust me, I never enjoy the carnage associated with panic selling, but it does provide investors with unique opportunities to buy into the market at significantly reduced valuations. The lesson here is not to run for the hills when the market tumbles. Instead, choose to get on the offensive and do some old-fashioned due diligence. History is on the side of the long-term investor, and the long-term trend has been pointing higher for a very long time.
What companies have you been on the prowl for over the past week? Share your thoughts and comments below and consider adding these six stellar companies to your watchlist.
Add Anheuser-Busch InBev, J.M. Smucker, Merck, Newmont Mining, Quality Systems, and Teva Pharmaceutical to your watchlist.