Nearly everyone has aspirations of retiring comfortably, and the smartest way to achieve this goal is by investing in high-quality companies over the long term. The biggest challenge for investors is figuring out which stocks to choose, since there are more than 7,000 publicly traded companies.
This challenge can be compounded for investors in their 50s who have a tough choice to make between preserving their capital and growing their nest egg to ensure that they don't outlive their savings. If you recall, the broad-based S&P 500 plunged more than 50% during the Great Recession, and this swan dive is still front-and-center in the minds of people in their 50s, some of which remain distrusting of the stock market with retirement on the horizon.
Cheap stocks that could be perfect for investors in their 50s
However, there are a handful of cheap stocks that appear to perfectly fit the bill of what investors in their 50s are looking for. In other words, they have established business models that can stand the test of time and can help preserve a capital investment, but there's also plenty of opportunity for growth and share-price appreciation.
If you're in your 50s, these cheap stocks could be perfect for you.
Bank of America
Stating in the financial sector, I'd encourage investors in their 50s to seriously consider Bank of America (NYSE:BAC), which I believe offers compelling valuation for a brand-name company. Keep in mind there could be some bias here, as Bank of America is a long-term holding in my personal portfolio.
Three things, in particular, could make Bank of America quite attractive. First, as in most money-center banks, Bank of America's profitability is heavily tied to its net interest margin. When the Federal Reserve holds lending rates low, it makes it difficult for banks to earn substantial profits off their interest-bearing assets. The Fed is at the cusp of a monetary tightening cycle, which is likely to see lending rates rise and net interest margins expand. My suggestion is that lending rates will probably normalize over the long run, which should expand Bank of America's margins and allow it to potentially double its dividend in the coming years.
Second, bad legacy loans and legal settlement costs tied to the mortgage meltdown in 2008-2009 have held back Bank of America. While no investors welcomed these charges, Bank of America is successfully putting these settlements into the rearview mirror. By doing so, investors are now able to make better year-over-year operating result comparisons. Better clarity is something investors should view positively.
Finally, we have Bank of America's brand-name and massive branch network within the United States. Banks aren't exactly raking in the positive vibes with consumers, but B of A's infrastructure and brand awareness does help its cause when it comes to customer retention and acquiring new clientele.
Bank of America is currently valued at just nine times forward earnings, and it's my suspicion that adjusted full-year EPS could tip the scales at $2-plus before the decade is over. It's an intriguing consideration for investors in their 50s.
Among technology stocks, I would suggest investors in their 50s give strong consideration to Apple (NASDAQ:AAPL) despite its recent troubles.
Apple's share price came under heavy fire following the release of its fiscal second-quarter results in late April. Its report featured the first year-over-year sales decline in 51 quarters, as well as the first-ever year-over-year decline in iPhone sales. Some pundits have suggested that Apple could be yesterday's news, but I'd kindly disagree.
Apple's biggest impact moving forward could be as a platforms company. Don't get me wrong: Apple still has a faithful following of iPhone, iPad, and Mac users, and according to Interbrand in 2015 it was the most valuable brand name in the world. When Apple introduces new products, consumers are interested, plain and simple. However, it's Apple's push into music, payment platforms, smart watches, and even automobiles that should intrigue consumers. Apple is expanding its universe of products under one umbrella to create new channels of revenue and partnership opportunities. Innovation is far from dead at Apple.
Another thing Apple certainly isn't missing is cash. Apple ended its latest quarter with a whopping $230 billion in cash and cash equivalents, and it's seemingly growing this hoard by about $40 billion to $50 billion per year. This cash pile has allowed Apple to enact a cumulative $250 billion return policy between share buybacks and dividends, which only works to encourage long-term investors to hang on. As long as Apple's cash flow remains healthy, its cash will help put in a floor on its downside potential.
Apple is currently trading at just over six times Wall Street's forward profit estimates once you strip out cash, which I believe is a compelling valuation when combined with its 2.3% dividend yield.
Investors in their 50s would also be wise to consider CVS Health (NYSE:CVS), the nation's largest pharmacy by market share.
The investment thesis behind CVS Health is pretty easy to understand: We're growing older as a country, and older Americans require more care, which plays right into CVS Health's long-term plan to improve consumer well-being.
CVS Health generates the majority of its profits from its pharmacy and pharmacy-benefits management operations. This would mean that gaining and retaining pharmacy customers is CVS Health's top priority. But no two prescriptions are alike. For CVS and other pharmacy operators, generic drugs generate the best margins. Although generics typically cost 10% to 20% of what branded drugs run, pharmacies can purchase generics in bulk at exceptionally low costs and then earn big profits by filling a lot of generic scripts. According to IMS Health, generic-drug prescriptions are on track to grow from 88% of all scripts to as high as 91% to 92% of all scripts by the end of the decade, which works in CVS's favor.
CVS is also poised to take advantage of a growing number of older Americans. Based on estimates from the Census Bureau, the number of elderly people in the U.S. is set to double between 2010 and 2050 to almost 79 million, whereas the number of the oldest old, defined as 85 and older, is expected to more than triple. An aging population often needs regular preventative care, which is an opportunity for CVS Health to expand all facets of its business.
Healthcare is a sector expected to see sustained growth in the decades that lie ahead, and CVS could be front-and-center in this expansion.
Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of and recommends Apple. It also has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. and recommends Bank of America and CVS Health. 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.