"Eighty percent of success is showing up."
-- Woody Allen
To paraphrase Woody Allen's famous quote in investing terms, 90% of success is buying the right companies and then getting out of the way. The other 10% is the hard part and takes a combination of skill and some luck, but most importantly, it also takes patience and the temperament to let time -- and the companies you invest in -- do most of the work.
When it comes to successful investments, value stocks are a great place to start. According to three of our top investors, small engineering and infrastructure consultant NV5 Global Inc (NVEE +0.00%), technology consulting giant Accenture Plc (ACN 2.45%), and tech titan Apple Inc. (AAPL +1.18%) all meet that definition right now.
Image source: Getty Images.
If you're looking to build a successful portfolio, keep reading to learn why these three surprising value stocks should be at the top of your list.
When a great growth stock is a lot cheaper than it seems
Jason Hall (NV5 Global Inc.): If you pull up a chart of engineering and infrastructure services company NV5's stock valuation, you'll see something like this:
At first blush, NV5 Global looks expensive, but these trailing measures miss value based on the company's own earnings guidance. At recent prices, NV5 trades for 24 to 26 times the company's guidance for 2017 earnings, with EPS expected to grow 30%-plus this year. That makes NV5 quite cheap for the kind of long-term growth is has started to deliver.
Furthermore, global infrastructure is a multitrillion-dollar industry; McKinsey says that the world spends $2.5 trillion each year on transportation, water, power, and telecommunications alone and needs to spend $3.3 trillion yearly to support global growth. A recent NV5 presentation says that the U.S. needs to spend $770 billion each year until 2040 to meet the country's infrastructure needs.
With a $440 million market cap, NV5 Global is a small fish in a massive pond, but with over 140,000 engineering firms (most with a single or only a few offices) in the U.S., there is opportunity for consolidation and organic growth. NV5's management has proved successful at both, having made more than 25 acquisitions since inception, while also delivering 8% organic revenue growth recently.
If it's growth potential at a bargain price, NV5 is the kind of company successful investors should look for.
An IT services giant
Brian Feroldi (Accenture): Technology is constantly evolving, which makes it difficult for businesses to stay on top of the latest trends. As a result, many businesses are increasingly willing to hire an outside team of experts to help them implement the latest advancements, which is great news for tech-focused consulting businesses such as Accenture.
Accenture employs a worldwide army of more than 400,000 highly trained professionals that can be rapidly deployed to consult on a big project. Predictably, accessing this service isn't cheap, but most businesses will happily pay up to make sure they have the expertise on hand to ensure the job is done right.
Accenture's recent results help show just how much demand there is for the company's services. Last quarter the company booked $9.2 billion in new business, which was driven by strong business demand for help with cloud computing and digital security. That figure compared favorably with the $8.3 billion in quarterly revenue that was recorded during the period and allowed the company's book-to-bill ratio to exceed 1. That's great news for investors, as it hints that revenue and profits should continue to climb from here.
With the company's financial statements poised to flourish, Accenture's management team should have no problem continuing its long history of using excess capital to reward shareholders. That should include buying back huge amounts of stock -- Accenture's spent more than $2 billion on buybacks over the past 12 months alone -- and passing through regular dividend bumps.
In spite of all of these positives, Accenture's stock isn't all that expensive. Shares are trading around 21 times trailing earnings, which represents a discount to the average business in the S&P 500. Throw in a dividend yield of 1.9%, and I think that Accenture is a compelling stock to consider buying today.
Cash is king
Travis Hoium (Apple): Successful investing can be as simple as owning the company that makes the products everyone has to have. Today that company is Apple, with its iPhone, extending to Macs, iPads, AirPods, and now HomePods.
The success of those products has led to a cash-generating machine and a balance sheet with $257 billion in cash and investments.
AAPL Free Cash Flow (TTM) data by YCharts
What's beautiful about Apple's business model is that it locks customers into an ecosystem of products that's very hard to leave. iTunes, the App Store, and cloud services mean music, movies, photos, and apps that are purchased or content that's put on the cloud is an incentive to keep buying Apple devices.
With a balance sheet that's holding hundreds of billions of dollars, Apple is able to invest in new technologies and products that will become its future revenue drivers. Apple Watch, AirPods, HomePod, and now augmented reality are a few of the new products and technologies that we know Apple is advancing. Beyond the iPhone, we may not know which product will dominate Apple's revenue, but the company has proved in the past the ability to disrupt itself to advance into new markets.
In a world that's becoming more connected with technology devices that are easier to use, I think Apple will continue to be one of the most profitable companies in the world for a long time to come. And trading at around 17 times trailing earnings and less than 15 times free cash flow, Apple remains one of the best value stocks on the market.
