3 Stocks for Your Roth IRA

One of the best ways to save for tomorrow is by opening and funding a Roth IRA today.

Mar 11, 2014 at 4:46PM

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)






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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Nicole Seghetti owns shares of Apple. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends Diageo plc (ADR). It recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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