The vast majority of investors don't have the time to watch the stock market on a daily basis. Or, in many cases, they are too tempted to tinker with their portfolio regularly when they should just buy and hold stocks for the long run and not worry about the ups and downs. For a company to be a set-it-and-forget-it kind of investment, though, it needs to have a strong business foundation and a management team that is a good steward of investor capital.
With this in mind, three stocks that have the traits you want in a business that doesn't need babysitting are Magellan Midstream Partners (NYSE:MMP), Nucor (NYSE:NUE), and American Tower (NYSE:AMT). Here's a quick look at why each of these companies is the kind of stock you want to own if you don't want to watch it every day.
Stable cash flow in capable hands
One trait that most companies in the oil and gas logistics business is that they mostly generate stable cash flows that produce high-yield investments. Magellan Midstream Partners is quite possibly the poster child for this business model. It owns and operates the nation's largest network of refined petroleum product pipelines.
For the most part, demand for pipeline space remains consistent for these products since gasoline and diesel demand don't fluctuate that much. Magellan ensures that it doesn't, though, as a vast majority of its supply contracts are structured with fixed fees and have minimum volume commitments.
It also applies these kinds of contracts for its crude oil pipelines and marine storage facilities. These two businesses don't make up nearly as much of total profits now, but they are poised to grow as most of the company's investments in the coming years will expand crude oil pipeline, marine storage, and export capacity.
Generating stable cash flows is one thing, but what separates Magellan from similar master limited partnerships in this business is that management has shown to be much better at being stewards of shareholder value. It certainly doesn't have the massive growth portfolio touted by others. Instead, it focuses on modest investments with high rates of returns. It also looks to use cash from operations to fund many of these developments rather than being wholly reliant on outside capital such as debt or equity raises.
If you are looking for a company that will consistently grow its payout to shareholders and has a management team you can trust to make good capital allocation decisions, you'd be hard-pressed to find one better than Magellan Midstream Partners.
Every employee is on board with improving results
There are many reasons why Nucor is unique in the steel industry. The company was a major market disruptor as it eschewed the traditional blast furnace method of steel making and employed electric arc furnaces instead. For years, this gave it an incredible amount of production flexibility that its competitors couldn't match, and it allowed Nucor to continually gain market share.
One thing that should give investors the most comfort about buying and holding this stock is that the entire workforce is much more aligned toward operational performance than others in the industry. Nucor's profit sharing and bonus structures mean that every employee is given the incentive to improve operations. This has a couple knock-on effects as well. Not only does it allow for granular improvements that improve efficiency that would be hard to implement from the executive level, but each employee sharing in the good times also means they take a hit during the bad times. This gives the company much more cost variability that leads to better margins in both the good times and bad.
For Nucor, the proof is in the pudding. These subtle differences are the reasons why the company has consistently had the best profit margins and returns on capital invested in the business.
I'll be the first to admit that the recent run-up in Nucor's stock price does make its valuation a little frothy. The current enterprise value to EBITDA of 12.5 times is well above the company's 20-year historical average valuation of 8.8 times EBITDA. Hopes that increased steel use and better prices seem to be the reason for the optimistic valuation, but that's a lot of growth to meet that valuation metric. Perhaps shares of Nucor aren't the best buy now because of its valuation, but when you do get an opportune time to buy the stock, you can rest assured that every employee is working toward the same goal as you are.
Valuable real estate
Here's a crazy statistic to consider: Average wireless data usage in the U.S. doubled between 2014 to 2015. Now, here's an even crazier statistic: In 2015, the average person used about 2.4 gigabytes of data per month. By 2020, total usage is expected to grow to around 10 gigabytes. That is an insane growth rate. To meet that growing need, wireless companies are going to have to install a lot of wireless infrastructure. For American Tower, this is an incredible opportunity.
American Tower's business is owning and leasing space on wireless towers to telecommunications companies. For many telecom companies, it's not that lucrative to own the land and the tower to hold its equipment alone. American Tower, on the other hand, can lease out space on the same tower to multiple clients. Each time it is able to add multiple clients to a single tower, it drastically improves the rate of return on those assets, as the company shows in a sample from its investor presentation.
There are other reasons why this is an attractive business as well. Since the company only owns the land and the towers, capital requirements are low and maintenance capital is even lower. Also, while there is still room to grow domestically, it is making a big push into countries where 3G/4G penetration is much lower and provides huge growth opportunities for years down the road.
With a massive growth platform ahead of it in emerging and evolving markets, a relatively low capital requirement for new towers, and a high rate of return from multiple tenant opportunities per tower, American Tower's business doesn't require much looking after. To sweeten the pot, the company is structured as a real estate investment trust and pays a dividend yield of 2.1%.