Many investors prefer to stick with well-known, large-cap stocks in their portfolios, so that they can benefit from the experience and size of the businesses involved. Yet it's still important to pick the right stocks at the right time in order to maximize your returns. With that in mind, below you'll find three large-cap stocks that our Motley Fool contributors believe are ripe for the buying. Read on, and see which one you find most compelling.
So why am I recommending General Motors (NYSE:GM)? It's because all of those factors already appear to be priced into the stock -- and because quietly, CEO Mary Barra is transforming her overhauled company into a highly profitable global powerhouse.
This isn't your parents' GM, with poor-quality, low-tech cars sold at profit-crushing discounts. Now, GM's quality is on par with Toyota's, and it's emerging as a leader in electric cars and self-driving technology.
It's also solidly profitable, though its profitability isn't yet on par with that of Toyota and its other global peer, Volkswagen. But that's a big part of what makes the stock an intriguing buy: Barra has a comprehensive plan to close the profit gap by early next decade, and it's already starting to work.
Right now, GM has a strong balance sheet, an ample cash reserve to fund product development during the next downturn, and a management team that is not only determined not to be "disrupted" by high-tech innovators, but moving to out-disrupt the upstarts.
GM isn't going anywhere, in other words. If Barra's plan works (and I think it will), in six or seven years, GM's annual earnings could be nearly twice what it made over the last four quarters. But GM's stock is currently trading at less than 5 times its earnings over the past year. That's cheap: We'd expect a big healthy automaker to trade at more like 10 to 12 times earnings.
It is possible that a downturn will hit before GM's stock takes off. You might have to wait a few years to see real growth. But you'll collect a strong (almost 5%) dividend yield in the meanwhile, and you'll have a front-row seat on an under-appreciated American turnaround story. Give this one a close look.
Dan Caplinger: The athletic footwear and apparel market has gotten much more popular lately, and industry giant Nike (NYSE:NKE) continues to play a vital role in the overall growth of the sector. The company has a brand that's known worldwide, and its presence has only gotten larger after efforts to diversify more heavily into sports like soccer to add to its dominance in basketball and tennis. Because of its size, Nike has positioned itself to negotiate from a position of strength with retailers to keep its pricing power high. That makes retail partners potential advocates for Nike, aligning their interests and promoting overall growth.
Yet Nike stock has taken a hit lately, in part because MVP basketball superstar Steph Curry of the Golden State Warriors slipped out of the swoosh-company's endorsement net and signed on with up-and-coming rival Under Armour. In addition, some point to the large amounts of money that Nike and its peers have had to pay for endorsements and exposure as potentially hurting long-term profitability. Nike has a strong network and has done a good job of boosting productivity wherever it can. As long as demand for its products remains high, Nike has the ability to deliver strong earnings results later this month, which makes it a smart pick for investors in June.
American Tower's business model is to build or buy cell towers around the world and then lease space out on them to multiple wireless providers. This model is quite popular with the wireless providers, as leasing from existing towers saves them both time and capital, allowing them to focus their attention on growing their networks.
Thanks in large part to the enormous global demand for smartphones, wireless providers have been spending billions to ensure their networks can keep up, which has driven huge demand for space on American Tower's sites. What's wonderful for investors is that it costs American Tower very little to add another carrier to an existing tower, which allows for a huge portion of the additional revenue gained to fall to its bottom line as profit.
In 2012, the company made a savvy move to convert from a corporation to a REIT, which requires it to pay at least 90% of its profits as dividends. With the company's top and bottom lines growing so quickly, American Tower has been able to increase its payout by more than 20% annually ever since.
American Tower is currently digesting its latest acquisition, which will help its tower count to soar to 150,000 by year end (up from only 100,000 at the end of March). Those new towers represent an opportunity for the company to continue to do what it does best -- add more carriers to their towers to continue their fast growth.
Looking ahead, I think American Tower stands a good chance of continuing to grow at double-digit rates for at least another decade. With shares trading for about 20 times AFFO (adjusted funds from operations) per share -- which is the REIT equivalent of earnings -- and offering up a yield of about 2%, I think this is a great company for any investor to consider.