Whether you're a value investor searching for bargains, a growth investor hunting for the next big thing, or a dividend investor looking to generate income, you can't go wrong with Microsoft (NASDAQ:MSFT), Berkshire-Hathaway (NYSE:BRK-B) (NYSE:BRK-A), and AbbVie (NYSE:ABBV). Here's why three of our contributors believe these stocks should be on your radar regardless of your investing style.
An innovative tech giant
Tim Green (Microsoft): Shares of tech giant Microsoft have a lot to offer. The stock isn't too expensive, trading for around 22 times free cash flow before backing out tens of billions of dollars of excess cash on the balance sheet. It pays a solid 2.3% dividend, and there's plenty of room for that dividend to grow. The company's products remain incredibly sticky, with Office remaining the dominant productivity suite despite increased competition. And while revenue has stagnated recently, the future looks bright.
Microsoft has invested heavily in its Azure cloud-computing platform, which is recognized as the No. 2 player, behind Amazon Web Services. Microsoft doesn't disclose Azure revenue, but noted that the platform grew revenue by 93% year over year during the latest quarter. Beyond Azure, a promising longer-term opportunity is augmented reality. Microsoft's HoloLens headset and Windows Mixed Reality platform have the potential to be the next major disruption in computing. It's even possible that the smartphone will eventually give way to some sort of augmented-reality device.
Microsoft offers something for just about everyone: a reasonable valuation, a nice dividend, major competitive advantages, and the potential for a return to exceptional growth. The company is more innovative today than it's been in quite some time, and investors of all stripes should keep an eye on the stock.
Jordan Wathen (Berkshire Hathaway): When it comes to picking a stock with something for everyone, one of the market's biggest and best-known conglomerates is an obvious choice. Berkshire's "something for everyone" qualifications go beyond its varied business units that range from insurance and railroads to restaurants like Dairy Queen. Berkshire also has multiple ways to win for its investors.
Rising interest rates would be a boon for its insurance operations. Declining stock prices -- though difficult to swallow in the short term -- would help it put its cash pile to work. Increasingly, it appears as though returns may come in the form of dividend payments to shareholders, as CEO Warren Buffett recently suggested the company may very well have to start paying dividends in the next few years. If Berkshire starts paying a dividend, even a modest one, it'll likely become the staple of dividend investors everywhere. (I suspect its dividend policy will favor very smooth increases over time rather than erratic dividends.)
Among diversified large-cap companies, Berkshire Hathaway is perhaps one of the easiest to study -- because its annual reports change so little. All the disclosures it made about its insurance operations in the year 2000, for example, are just as detailed in its most recent annual report, making it possible to follow along and compare its performance with each annual and quarterly report. At a recent price of about 1.4 times book value, shares are reasonably priced -- and Buffett and Charlie Munger, Berkshire's vice chairman, believe it could still generate a 10% compounded return for investors, provided it can put some capital to work over the next few years.
A biotech that checks off all the boxes
Keith Speights (AbbVie): Some investors prefer growth stocks. Some like value stocks. Others rank dividend stocks at the top of the list. AbbVie is one of a select group of stocks that checks off all three boxes.
Wall Street analysts expect AbbVie to grow earnings by an average annual rate of over 14% over the next five years. That projection seems quite achievable, in my view. AbbVie's top-selling drug, Humira, continues to perform nicely. Although there is a threat of competition from biosimilars, AbbVie thinks it can hold off rivals in the U.S. through 2022 by defending its wide array of patents.
The biotech should also benefit from growth from its wildly successful cancer drug Imbruvica. In addition, AbbVie's pipeline could produce several new blockbusters. Rova-T, which the company picked up with its acquisition of Stemcentrx in 2016, stands out as an especially promising candidate in treating lung cancer.
What about value? AbbVie stock trades at just over 10 times expected earnings. That's crazy cheap -- particularly with the company's solid growth prospects. The discounted price is no doubt largely a result of concerns about Humira. Considering that the first trial over AbbVie's intellectual property for the drug doesn't begin until November 2019, I think AbbVie should be able to work the legal system -- and the clock -- pretty effectively while it rolls out new drugs from its pipeline.
As for the dividend, most investors wouldn't mind having the yield of 3.88% that AbbVie currently offers. Since being spun off from parent Abbott Labs in 2013, AbbVie has increased its dividend by 60%.