The current bull market is one of the longest in history. The extended duration certainly makes it difficult to find slam-dunk buying opportunities at bargain prices, which is supported by the fact that the market looks expensive by many metrics. In fact, the Shiller price-to-earnings (PE) ratio, or the cyclically adjusted PE ratio, of the S&P 500 is higher today than at any other time in history, save for the run-up to the dot-com bubble burst in 2000.
What should long-term investors do, given the market's current frothy valuation? Simple... do what you should do in any market -- that is, buy great companies at great prices and hold forever, rather than trying to time the market by waiting for a pullback.
The guac is extra, but that's OK
Avocados have certainly lived up to their status as a superfood for Calavo Growers. The global leader in avocado production and distribution has received quite a boost in recent years, thanks to the fruit's booming popularity.
The company has wasted no time expanding through acquisitions aimed at increasing production and diversifying into packaged foods for vegetables, salads, wraps, sandwiches, and snacking products. While Calavo Growers is also a leading producer of tomatoes and Hawaiian papayas, avocados have been the primary catalyst for market-beating returns.
Calavo Growers isn't showing any signs of slowing down. For the six months ended April 30 compared to the prior-year period, revenue grew 17%, operating income grew 15%, and earnings per share (EPS) grew 13%. In fact, the business is on track to notch $1 billion in annual sales for the first time ever.
The strength of operations has been reflected on the cash flow statement, too. From fiscal 2013 to fiscal 2016, cash from operations grew from just $13 million to $62 million. That allowed Calavo Growers to boost its annual dividend payout 28% in that period and push its streak of consecutive years with a dividend increase, to five.
But the guac and growth are extra. While the stock is relatively pricey at five times book value and 24 times future earnings, the power of compound interest and ample growth opportunities will benefit investors who take a long-term approach.
A beaten down ethanol stock
A few months ago, I couldn't believe that the stock of leading ethanol producer Green Plains was trading at the ridiculously low price of just below $20 per share. Then August happened.
The stock dipped to new 52-week lows (at $16.35 per share) after gasoline-blending requirements throughout the United States were temporarily eased with federal waivers, which attempted to keep a lid on price volatility at the pump in the aftermath of Hurricane Harvey. That impacted ethanol-blending requirements and the market for subsidies at a time when producers were already struggling from a glut of renewable fuel.
Despite a rough 2017, Green Plains has handily beaten the S&P 500 over the long run.
Better yet, management has quietly positioned the company to thrive in any market. While ethanol production is still the bread-and-butter business, Green Plains is now the world's leading producer of vinegar and the fourth-largest owner of cattle feedlots in the United States. Non-ethanol businesses now account for nearly 60% of total earnings before interest, taxes, depreciation, and amortization (EBITDA), while contributions are expected to grow 18% from 2017 to 2018.
Even after struggling in the last two quarters, Green Plains trades at just 16 times future earnings, 0.83 times book value, and 0.21 times sales. That means investors who take a long-term view get a pretty sweet deal: a profitable company in any market and an absolute cash cow when the core ethanol business hits an upcycle (see: 2014 in the chart above). Given the 2.6% dividend yield right now, you may not want to wait to buy this dividend stock.
Don't sleep on this icon's "turnaround"
As we approach the final quarter of 2017, General Electric stock continues to approach new lows. Make no mistake about it: The year-to-date collapse is historic, doubly so given the current bull market.
On one hand, uncertainty is almost always a stock's worst nightmare. Wall Street would often rather flee to safe havens than stick around hoping for a turnaround. On the other hand, this is General-freaking-Electric we're talking about.
While in hindsight, the original 2017 and 2018 EPS targets were lofty and unattainable to achieve for the industrial segments alone. But General Electric has an enviable collection of assets that seem poised to capture long-term growth for both the top and bottom lines.
The digital-industrial conglomerate is singlehandedly nurturing the metal 3D printing ecosystem and the digital-industrial internet. Recent goals of making every single employee learn programming and building a billion-dollar business in cell manufacturing promise to pay big dividends in the long term, especially given that John Flannery, the former head of GE Healthcare, is now the CEO. Headcount reductions and further fine-tuning of the portfolio will surely be announced, but don't be surprised if bold acquisitions are made before the end of the decade, either.
Ironically, despite Wall Street's pessimism, analysts currently peg General Electric stock to less than 15 times future earnings. Throw in a 3.8% dividend yield and the opportunity to buy this stock at a 20% discount from the closing price at the end of last year, and investors with a long-term mindset may find this to be a once-in-a-lifetime buying opportunity.