3 Stocks for Your Roth IRA

Savvy investors know that a little bit of retirement planning today can really pay off later. One of the best ways to save for tomorrow is by opening and funding a Roth IRA. Let's quickly review the Roth IRA basics. Then we'll dive into three high-quality stocks for you to consider for your Roth. 

Roth IRA primer
Roth IRAs are unique investment accounts that offer tax-free retirement income. You can buy stocks, bonds, mutual funds, and exchange-traded funds in a Roth IRA. If you qualify, you can contribute thousands of dollars to a Roth IRA every year for the rest of your working life. And if you think you might be in a higher tax bracket when you retire, a Roth may be right for you.

Supercharge your Roth
Here are three great companies to consider. All have enjoyed strong growth over the past several years and possess robust prospects in emerging economies or industries. Significant tax savings would've been enjoyed if these stocks had been owned in a Roth IRA.


$5,500 Invested Five Years Ago Would Be Worth 

Tax Savings if Invested in Roth IRA 

Diageo (NYSE: DEO  )



Allstate (NYSE: ALL  )



Apple (NASDAQ: AAPL  )



Source: Yahoo! Finance data as of March 10, 2014. Tax savings compared to paying 15% long-term capital-gains tax.

Investors will drink to that
The world's largest liquor company by revenue, Diageo sees developing markets and the surging popularity of brown liquor as key drivers for growth. The U.K.-based company upped its stake in India's United Spirits last year, giving it the leading position in the world's largest whiskey market. Its wildly popular Johnnie Walker brand enjoyed 15% net sales growth for 2012, while its premium products grew 28%. Diageo is also experiencing success with its whiskey brands in China, a country whose thirst for luxury Scotch whiskey is second only to that of Scotland's. 

Diageo's revenue has averaged annual growth of 16% and earnings have averaged 6% during the past three years. The liquor maker's current P/E ratio is 17.6, while its five-year average P/E is 18.5.

A bundle of shareholder love
Allstate's product suite, including auto, homeowner, and life insurance, allows the company to build a comprehensive portfolio of products with its customers. This is considered an advantage over its more auto-centric peers. Bundling of insurance products can also improve customer retention. To combat catastrophe losses, which are a main driver for Allstate's earnings volatility, the insurer has been reducing its exposure to riskier geographic markets by raising premiums and reducing the number of in-force policies.

Over the past three years, Allstate's revenue has averaged annual growth of 3%, while earnings have averaged 53%. Its recent P/E ratio is less than 12, while its five-year average P/E is 15. But its forward-looking P/E of only nine makes it one stock to consider for your Roth IRA today.

Apple of investors' eyes
Apple maintains an impressive position in growing categories like smartphones and tablets, but the company's market share declined last year. Competitive threats have intensified from Samsung and more recently from competition in emerging markets from Asian vendors. Going forward, Apple will need to increasingly rely on innovative new products like wearables and TVs to reignite revenue growth and improve profitability.

Both Apple's revenues and earnings have averaged annual growth of 27% over the past three years. Apple's current P/E ratio nears 13, while its five-year average P/E is more than 15. But its forward-looking P/E is roughly 11. Given Apple stock's 4% year-to-date retreat, it's time to consider adding this stock to your Roth IRA today.

Foolish takeaway
By owning these stocks in a Roth IRA, you can potentially ditch a big tax bite and save yourself money over the long haul. Of course, that's if you follow the Roth IRA rules and these stocks live up to their growth expectations.

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Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 11, 2014, at 4:56 PM, Awebb30 wrote:

    To be fair, pretty much any high-quality company has a great 5-year return right now since we're pretty much at the 5-year anniversary of the market low from the Great Recession. It was a great time to be a buyer with panic in the streets and ridiculous bargains everywhere!

  • Report this Comment On March 11, 2014, at 5:49 PM, ranchrfl wrote:

    In 2001, I bought 4,000 shares of AAPL in my Roth and 1,000 for my wife in her Traditional IRA. In 2009, we converted her IRA to a Roth and paid the tax on $85/share... Retired:)

    THANKS AAPL!!!!!

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Nicole Seghetti

Nicole is a contributing writer for The Motley Fool. She's worked as a financial advisor and planner for over a decade. Nicole holds an MBA from the University of the Pacific and a chemical engineering degree from Purdue University. She welcomes you to follow her on Twitter.

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