News flash, seniors: The average American's life expectancy has increased by roughly a decade since you were born, meaning now more than ever, you'll need to ensure you won't outlive your money. This means that even if you retire from your career, you never retire from investing for your future.
Of course, investing as a senior presents its own set of challenges, since income and capital preservation are key. However, you still want a good deal and the opportunity for capital appreciation.
With this in mind, we asked three of our Foolish investors to name a value stock that they thought would speak to senior citizens. Rising to the top of the list were drug giant Pfizer (PFE +0.78%), furniture manufacturer La-Z-Boy (LZB +0.03%), and entertainment powerhouse Walt Disney (DIS +0.63%).
Image source: Getty Images.
Cure your portfolio's ills with this 4% yield
Sean Williams (Pfizer): Since seniors generally want two things, steady income generation and the preservation of capital via low volatility, the most logical company to consider is Big Pharma Pfizer.
Earlier this decade, Pfizer struggled with the patent cliff, which is another way of saying a number of its key therapies lost their patent exclusivity and were hammered by the introduction of generic drugs. For instance, cholesterol-lowering drug Lipitor, which at one time topped $13 billion in annual sales, is only on track to generate about $1.6 billion in sales this year, based on its $404 million in extrapolated first-quarter sales.
But here's the good news: the patent cliff has been firmly placed in the rearview mirror, at least over the intermediate term. This is allowing Pfizer to regain its luster, mainly as a result of exceptionally strong oncology and internal medicine sales. As Lipitor moves to the backburner, Ibrance, a drug designed to treat HER2-, HR+ advanced breast cancer, has become Pfizer's headline product. Sales grew 59% on a constant currency basis in the first quarter to $679 million, and it's looking possible that peak annual sales may top $5 billion, assuming Ibrance expands its label indications. Within internal medicine, oral anticoagulant Eliquis has been a star, with alliance revenue soaring 52% in Q1 2017 for Pfizer to $564 million.
Pfizer also has an exceptionally deep pipeline that should allow it to replace what revenue winds up being lost to generic competition in the future. As of May 2, 2017, the company had 96 (yes, ninety-six) clinical-stage or registration-stage products. If even only a small portion of these trials are successful, Pfizer should have ample avenues to grow sales in the years to come.
Image source: Getty Images.
And, of course, Pfizer and Merck KGaA could benefit from the recent introduction of cancer immunotherapy Bavencio. Cancer immunotherapies work with a patients' immune system to halt the ability of cancer cells to remain undetected, and they're becoming a foundational cancer therapy. Though sales estimates vary, Bavencio is widely expected to become a blockbuster with well over $1 billion in annual sales.
Given its minimal volatility, forward P/E of just 12, and nearly 4% yield, there's a lot for senior citizens to like.
Sit back, relax, and enjoy the dividends
Rich Smith (La-Z-Boy): Retirement is a time for relaxation, and what better way to relax than kicking back with a La-Z-Boy recliner?
La-Z-Boy is a classic name in American consumer goods, and a trusted brand among homeowners. But with its stock price up less than 9% over the past year (the broader market is up more than 13%), it's a stock that seems to have fallen out of vogue with a new generation of Millennial investors. I think that's a mistake.
La-Z-Boy closed out its fiscal year 2017 and reported earnings last month, and the news was pretty good. Sales were basically flat year over year, but profits for the furniture maker climbed 12% on improved gross and operating margins. Net profit margins for the company's marquee upholstery business were "the highest in more than a decade."
Image source: La-Z-Boy.
Thanks to that strong quarterly performance, La-Z-Boy stock now sells for just 18.4 times trailing earnings. Even better, the company's cash profits are so strong (nearly 50% ahead of reported earnings) that La-Z-Boy stock costs only 12.2 times full-year free cash flow.
And even that's not all. Plump with cash, La-Z-Boy sports $158 million in the bank against essentially zero debt, giving the stock an enterprise value far cheaper than its market cap suggests -- just $1.4 billion -- and an enterprise value-to-free cash flow ratio of less than 11.
Analysts expect the good times to keep rolling for La-Z-Boy, with earnings growth projected at 11.8% annualized over the next five years. With an EV/FCF ratio below that, and a modest 1.4% dividend yield, I think La-Z-Boy is value-priced today -- and a great value stock for senior citizens to consider buying.
Stay young at heart
Steve Symington (Walt Disney): Whether you're young or old, you've almost certainly grown familiar with Disney's enviable stable of brands, characters, theme parks, and media networks over your lifetime.
That's not to say Disney is without challenges. Investors rightly worry that Disney's media networks business -- which represented around 44% of last quarter's revenue and more than 55% of overall operating income -- will drag it down as cable cord-cutters migrate to online streaming alternatives. But even putting aside the fact that Disney has struck partnerships with platforms like Netflix in addition to working on its own "over the top" streaming service through its stake in BAMTech, Disney's other segments have proven they can pick up the slack in the meantime.
Image source: Walt Disney.
Disney's Parks & Resorts business, for example, grew revenue and operating income 9.4% and 20.2% year over year last quarter, respectively, thanks to both strong domestic attendance and guest spending, as well as last summer's opening of a massive new $5.5 billion park in Shanghai. Meanwhile, Disney's Studio entertainment business sits poised to benefit from future blockbuster theatrical releases from not only its namesake studios, but also its ownership of Pixar (acquired for $7.4 billion in 2006), Marvel (acquired for $4 billion in 2009), and Star Wars and Indiana Jones creator Lucasfilm (acquired for $4.05 billion in 2012). Disney also wins as the fruits of those releases trickles down to its consumer products division. So despite achieving modest 2.9% revenue growth last quarter -- and keeping in mind Disney aims to return at least 20% of the cash it generates to shareholders through dividends and share repurchases -- Disney simultaneously grew its adjusted earnings per share by 10.3%.
With shares trading around 10% below their 52-week high and at roughly 16 times this year's expected earnings, I think the stock is a compelling bargain for any investor looking for a combination of potential for share price appreciation and capital returns. As Disney continues to position itself for long-term success despite today's changing entertainment landscape, I think it will only become a more dominant industry force and continue to reward shareholders in the process.
