It can be a daunting task for investors to narrow down their list of potential stocks to buy. But that pressure can be even greater for retirees who want to enjoy the outsized gains offered by the stock market without much of the risk that seems to inevitably come with it.
But there are plenty of great stocks that offer a healthy balance between stability and the potential to deliver market-beating gains -- and all too often they're already owned by the world's wealthiest investors. To that end, we asked three top Motley Fool investors to each discuss a so-called "billionaire stock" that they believe retirees would be wise to consider. Read on to learn why they chose General Mills (NYSE:GIS), Procter & Gamble (NYSE:PG), and General Motors (NYSE:GM).
A steady high-yielder
Steve Symington (General Mills): George Soros has built his estimated $25 billion fortune as one of the world's most astute investors, so it's no surprise that his stock purchases are closely followed by so many people. And recent Securities and Exchange Commission filings from Soros Fund Management reveal that he added 365,493 shares of General Mills to the fund's portfolio last quarter -- a significant new position worth roughly $20 million at today's prices.
That's not to say General Mills is a perfect company by the market's standards. Shares of the cereal and packaged food juggernaut are down around 11% so far in 2017, largely driven by its recent stagnant sales and earnings growth. Earlier this week, the company reaffirmed its full fiscal-year targets for organic revenue to decline in the range of 1% to 2% year over year, and -- with the help of share repurchases and cost reductions -- for earnings per share to increase between 1% and 2% on a constant currency basis.
At the same time, General Mills is intent on rewarding investors for their patience. In addition to those repurchases (the company bought back and retired 25 million shares last year for $1.65 billion), it also recently raised its quarterly dividend by a penny per share, to $0.49. That marked its third increase in less than two years, and brings General Mills' annual yield to a generous 3.6% today. For retirees willing to pick up shares at this depressed price and let their dividends compound, I think it would be a great move to follow Soros' lead.
A consumer products titan
Demitri Kalogeropoulos (Procter & Gamble): Warren Buffett cashed out of his longtime Procter & Gamble investment last year in exchange for complete ownership of the Duracell battery brand. There's plenty of demand for this consumer goods titan among billionaire investors, though.
Activist Nelson Peltz recently built up an over $3 billion stake in P&G in preparation for an attempt to win a seat on the board of directors. Management isn't happy about the challenge, but shareholders can watch this battle play out while benefiting from ownership in a rebounding business.
P&G's sales growth pace doubled to 2% this past fiscal year, and is projected to tick higher again in fiscal 2018. Aggressive cost cuts, combined with a portfolio reboot that shed the slower growing, less profitable brands like Duracell, have pushed operating margin above 20% of sales, compared to 18% just a few years ago.
It's true that P&G's market share position has weakened over the last few years, especially in its Gillette shaving franchise. Continued declines on this core metric would give investors -- billionaires and nonbillionaires alike -- good reason to demand major strategic changes. However, with sales growth speeding up and profitability setting new highs, P&G's rebound initiative appears to be gathering momentum, which makes this dividend giant an attractive long-term bet for retirees.
An overlooked dividend
Daniel Miller (General Motors): David Einhorn's Greenlight Capital is one of the more well-known hedge funds out there, with a value topping $6 billion. And despite the gloom and doom surrounding the peaking automotive industry, one of the fund's biggest bets is on Detroit's largest automaker, General Motors. In fact, Greenlight Capital owns nearly 55 million shares of GM, which is a substantial 30.85% of the fund portfolio. And with a more than 4% dividend yield, it might be a good value-stock investment for you, too.
One factor that bodes well for retirees is that GM is talking the talk when it comes to being prepared for the next downturn. In fact, it put together a presentation that modeled for a 25% decline in U.S. sales, and noted that while its profits and cash flow would shrink considerably right off the bat, it would still be able to invest in major projects and strategies all while remaining profitable. GM has so far committed to maintaining a sizable cash balance of about $18 billion and has focused on driving its return on invested capital higher by exiting less lucrative markets and doubling down on more profitable ventures.
Also, in the event of a downturn, slowdown, or a plateau in U.S. new-vehicle sales, GM should be in a better position thanks to its launch cadence over the next few years. Between 2011 through 2016, GM's launch cadence average -- which is basically the percentage of GM's global sales from new or refreshed models within the past 18 months -- was 26% of its volume. But that percentage is expected to average 38% of global volume through 2020, peaking at 47% during 2020. That matters because, in a tough sales environment, newer vehicles simply sell better and hold up average transaction prices.
Ultimately, while retirees should consider the risk of owning cyclical stocks, Detroit's automaker seems like a good bet -- and Einhorn agrees -- and its 4% dividend yield and price-to-earnings ratio (TTM) of 6.5 suggest a valuable dividend and a cheap stock.
Daniel Miller owns shares of General Motors. Demitrios Kalogeropoulos has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.