Which stocks should retirees consider that could provide their portfolios with opportunities for both safety and capital gains?
In a rising market like the one we're in, finding companies to buy right now isn't an easy task. But three Motley Fool investors have identified Walgreens Boots Alliance (NASDAQ:WBA), Apple (NASDAQ:AAPL), and Harley-Davidson (NYSE:HOG) as stocks that retirees will want to buy now.
Moving forward with growth
Dan Caplinger (Walgreens Boots Alliance): Retirees can appreciate the growing need for healthcare among the now-retiring Baby Boom generation, and Walgreens Boots Alliance has been at the forefront of positioning its drugstore locations to play a vital role in providing that healthcare. Walgreens has made ambitious efforts to expand, first with its step-by-step investment and eventual acquisition of Alliance Boots, and more recently with its attempt to merge with Rite Aid. Although that deal fell through, Walgreens still achieved many of its strategic goals by signing an alternative agreement to acquire almost 2,200 Rite Aid locations for $5.175 billion.
Walgreens is also doing a good job of competing against its rivals. Late last year, the drugstore giant managed to snag two major contracts from its chief competitor, and it keeps fighting to expand its reach in pharmacy benefit management and other ancillary services. Walgreens hasn't been entirely immune to the difficult conditions faced by the entire retail industry, but it does benefit from the fact that customers generally need to make frequent visits to its stores. Demographics will make that number of loyal customers rise; if it can make the most of them, Walgreens Boots Alliance should have plenty of growth left in its future.
The world's most valuable tech company
Leo Sun (Apple): Apple might seem like a risky play for retirees, since 55% of its revenue still came from iPhone sales last quarter. But Mac and iPad sales are rising, and services revenue (from Apple Music, iTunes, Apple Pay, and other services) is gaining weight on the top line. It's also diversifying its business with the Apple Watch, original video content, and rumored augmented-reality and virtual-reality devices.
More importantly, Apple has $261.5 billion in cash. That figure is higher than the market caps of Netflix, Disney, and even AT&T -- so the device maker could certainly acquire other businesses to reduce its dependence on the iPhone. Most of Apple's cash remains overseas, but reduced corporate tax rates could let it bring that cash home for domestic acquisitions, buybacks, and dividend hikes -- all of which would boost shareholder value. Apple's forward yield of 1.6% might seem low for retirees, but its low payout ratio of 27% indicates that it could easily double its dividend if the stock ever stalls out.
In a worst-case scenario, Apple would become another mature tech stock like IBM, which investors own for income and stability instead of growth -- making it a solid retirement play. But if Apple effectively disrupts other industries and taps its cash hoard for inorganic growth, it could rise much more than the typical slow-growth retirement stock.
Hop aboard this iron horse
Rich Duprey (Harley-Davidson): Motorcycle king Harley-Davidson is a company you'll want to hit the open road with. Although it is currently suffering from a slowdown in sales as its core customer demographic pulls back from buying big bikes, Harley also refuses to engage in the discounting game the rest of the industry is employing. It could likely generate sales growth if it cut prices, but it prefers to retain its prestige nameplate and profit margin by keeping its prices at a premium.
Harley-Davidson can afford to do that because it virtually owns the American motorcycle market. Even with all the sales slippage it has suffered, it still commands a 50% share of the U.S. market. And while the demographic profile of motorcycle riders is shifting -- the average age is getting younger, more buyers are urban, and the gender balance is heading closer to even -- Harley's share of young, urban, and female buyers is also excellent.
The leading motorcycle maker knows it needs to reach younger riders, for its own health and that of the industry, and it has a goal of attracting several million new customers to the brand over the next decade. As part of that, Harley just released eight new models in honor of its 115th anniversary, merging Softail and Dyna models into a single Softail product line, and gave them detailing that ought to appeal to riders of all stripes.
Shares of Harley-Davidson are down 20% in 2017, and have fallen 26% from their 52-week high. The company trades at just 13 times earnings and 12 times next year's estimates, and the stock goes for just nine times the free cash flow it produces, a super-discounted valuation. With a dividend of $1.46 yielding 3.1%, this is a stock everyone should probably jump on now.
Dan Caplinger owns shares of Apple and DIS. Leo Sun owns shares of AT&T and DIS. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Netflix, and DIS. The Motley Fool has a disclosure policy.