Investors in their 50s are still a decade or so away from retirement, which means they shouldn't take their foot off the growth pedal just yet. However, these investors can't afford to take on the same amount of risk as their younger counterparts. That's why they should start to favor stocks that have durable business models and offer a compelling combination of growth, value, and income.
Interactive Brokers Group (NYSEMKT:IBKR) and American Tower (NYSE:AMT) are two companies that I think fit those criteria perfectly, so let's take a closer look at them to see why they could be ideal choices for investors in this age group.
A low-cost provider in a commodity business
The advent of electronic trading has commoditized the buying and selling of financial securities, so many investors now choose their broker based solely on cost. That fact has greatly benefited Interactive Brokers Group, as its low-cost business model has allowed it to steadily win market share for years.
Customers who sign on to the company's platform can buy and sell a wide range of financial products such as bonds, stocks, foreign currencies, commodities, and more. However, unlike other brokers, Interactive doesn't own any physical branches or spend a ton of money on marketing. It also uses software to automate most of the account setup, risk management, and customer service parts of its business. These moves help keep its cost structure very low, allowing the broker to charge far less than its competitors.
Here's a nice table that shows just much lower this company's fees are when compared with the competition.
Recent results show that the company's low-cost strategy continues to work like magic. Last quarter, customer accounts grew by 15% and customer equity grew by a strong 33%. While market volatility will always cause the company's revenue and profits to wax and wane, as long as Interactive continues to steal market share, its stock should in turn increase over time.
Shares currently trade for 21 times next year's earnings estimates and offer a dividend yield of 1.2%. Those are attractive numbers for a company that Wall Street believes can grow its profits by more than 15% over the long term.
Connecting you to profits
Consumer demand for mobile data is insatiable, so wireless carriers have been forced to invest billions in their networks to keep up. One beneficiary of all of that spending is American Tower, one of the largest owners of cellular towers in the world.
American Tower makes its money by buying or building cellular towers around the world, and then leasing out space on them to local wireless providers. Telecoms are happy to sign long-term leases with the company since it frees them from having to find and maintain their own locations, making this a win-win arrangement.
What's beautiful about this business model is that American Tower can host multiple carriers on a single tower. Since its costs are largely fixed, each additional tenant leads to huge growth in profitability. That factor has allowed the company's profits to grow at a far faster rate than revenue over the past decade.
With 5G networks on their way and more devices hitting the market every year, demand for the company's towers is likely to remain strong for years to come. That should allow the company to continue to grow its top and bottom lines at double-digit rates for the foreseeable future.
With shares currently trading at 18 times next year's earnings estimates and offering a dividend yield of 1.76%, I think this stock presents an attractive combination of growth, value, and income.