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3 Great Stocks for Your IRA

By Jason Hall - Apr 24, 2017 at 4:22PM

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If you're saving for retirement, Mastercard Inc., iRobot Corporation, and Trex Company Inc. are three stocks worth owning in your IRA.

One of the best tools at the disposal of the retirement saver is the IRA, or individual retirement arrangement. Not only does it allow you to grow your retirement savings without paying any tax on your profits or dividends, but it's a wonderful way to consolidate your old 401(k)s from prior jobs. 

Furthermore, it gives you control over your retirement money and the ability to invest it as you see fit -- and that can make a big difference in your returns. So if you're saving for retirement and looking for stocks to buy in your IRA, Mastercard Inc. (MA 0.02%), iRobot Corporation (IRBT 3.32%), and Trex Company Inc. (TREX 3.64%) are all worth a closer look. Keep reading to learn why these are three great stocks for your IRA. 

Man sitting on floor with a piggy bank as dollars rain down from above.

Image source: Getty Images.

The robots are taking our... chores?

There is a lot of conversation around the role of automation in our lives, and technology is rapidly changing how we do many things. As a society, we must adapt to these changes, which are going to have a huge impact to the workforce. But this isn't a new thing: Mechanization and automation have been affecting jobs since the first human used an ox to plow a field millennia ago.

iRobot Roomba and Braava in operation.

Image source: iRobot.

While much of the conversation is tied up in the jobs lost to technology, those advances have also made work less physical and far safer, while freeing up more of our time for leisure. And iRobot is further freeing us from mundane, time-consuming tasks with its Roomba, Mirra, and Braava purpose-built robots.

Established in 1990, iRobot is an industry leader, and its recent shift to a strategic focus on consumer robots is paying off. Since 2013, the company has seen revenues grow by 15% per year, and the launch of its Braava wet floor care robots is on track to drive sales even higher. 

With annual sales of less than $700 million, there's a significant amount of growth in this company's future. With a market capitalization of less than $2 billion and trading for about 27 times next year's earnings, now's a good time to buy shares of this long-term growth story. 

When No. 2 is as good as No. 1

Mastercard and Visa have a huge share of the global electronic payments market between them, and Visa is by far the bigger of the two in this still-growing industry. So what makes Mastercard my preference between the two? In short, Visa's size could be a detriment to growth in some markets, while Mastercard's position as No. 2 -- but a very dominant No. 2 -- has it well positioned but potentially less exposed. 

A smartphone user making mobile payment with MasteCcard.

Mobile payments are another catalyst for Mastercard. Image source: Mastercard.

Why either of these electronic payments giants? First, this is a cash-cow business where their size offers significant competitive advantages. Merchants and banks both want to work with them because their scale means access to customers. It's a major network-effect competitive advantage. Second, this is a growth industry. On a global basis, electronic payments are a small part of the total mix -- barely more than 10% of total global transactions. 

And with the global middle class on track to add billions of new members in the coming decades, Mastercard is as well poised to profit from this as any company in the industry.

Furthermore, don't ignore the dividend. It may only yield 0.7% at recent prices, but Mastercard is almost certainly going to be able to increase payouts at a high rate for many years to come. And that could make this an incredible income stock to own in a decade or two. Bottom line: This is exactly the kind of stock to buy in an IRA and hold even after you retire. 

The power of a sustainable product to take market share

Millions of homes have decks, and some of the most unpleasant but entirely necessary chores for every deck owner are cleaning, water treating, and restaining that deck, sometimes at least once per year depending on the local climate. This is a time-consuming and expensive task, but the cost of not doing it is even more expensive -- having to replace your deck years before its potential life span if well maintained. 

Trex deck with pool in the middle.

Image source: Trex.

This is where Trex comes in. The company makes wood-alternative decking, as well as railing, lighting, and other outdoor living accessories, and has established itself as the dominant leader in the market, commanding more than 40% of annual sales (and growing its share every year). And while a Trex deck costs more than traditional wood, it requires almost no maintenance, and can last for decades. That's a huge benefit for the homeowner looking to improve their outdoor living space, but not at the cost of hours of maintenance and the expense of the stains, sealers, and cleaners needed. 

Trex decking is also one of the most "green" products a consumer can buy for their homes, as it is made up almost entirely of recycled polyethylene plastic and wood shavings. It also eliminates the need to purchase and apply chemical cleaners, sealers, and stains every year to maintain a deck. This is a major competitive advantage versus traditional wood, especially with younger homebuyers, who are more thoughtful about the environmental impact of their purchases. 

And despite its huge market share advantage over its non-wood competitors, Trex has a lot of room to grow. According to the most recent data, Trex's total board-feet market share of all decking -- including regular wood -- was less than 10% in North America. Considering that the company is only scratching the surface of its potential at home, the global opportunity is at least as big. 

Trading for less than 23 times next year's earnings and with a massive addressable market, Trex is another perfect stock for retirement savers to own. 

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Stocks Mentioned

iRobot Stock Quote
$37.97 (3.32%) $1.22
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$315.56 (0.02%) $0.07
Trex Company, Inc. Stock Quote
Trex Company, Inc.
$56.40 (3.64%) $1.98

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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