Growth stocks are considered to be more volatile than average stocks and, therefore, generally not excellent retirement investments. However, all growth stocks are not in the same boat. Here are two that our writers feel could be excellent additions to retirees' stock portfolios for years to come.
A leading market share and lots of growth potential
Matt Frankel (Visa): One growth stock that works well as an investment for retirees is Visa (V 1.17%). The company is certainly doing a great job in terms of growth. Over the past year alone, revenue and earnings per share were up by 26% and 25%, respectively, which certainly justifies Visa's valuation of 26.5 times forward earnings if it continues.
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At first glance, you might not think that Visa has much more room to grow. The company has a dominant lead in the payment processing market -- its 50.6% market share as of 2016 is more than double that of its closest competitor -- and its 328 million cards in the U.S. are more than the other three major brands (MasterCard, American Express, and Discover) combined. And with operations in more than 200 countries worldwide, it may sound like international expansion opportunities are limited.
However, it's important to note that Visa actually has lots of room to grow, especially in emerging markets like China and India. Growth there, as well as in other developing countries, could keep Visa's growth rate in the double digits for decades.
Finally, while Visa doesn't pay much of a dividend (yield is 0.6% as of this writing), the company does have a rather aggressive buyback program to return capital to shareholders, which should further boost EPS in the years ahead.
This could be your ticket to Ryder
Rich Smith (Ryder Systems): What should a retiree look for when looking to invest in a growth stock? Well, growth, of course. But you don't want to put all your retirement nest eggs in the growth basket. Before buying a stock, retirees in particular should consider hedging their bets and insisting that even a "growth stock" also offer its investors a reasonable valuation and a steady dividend.
Ryder Systems (R 1.38%) stock checks all three of these boxes.
Best known for renting big white trucks with the famous red logo, Ryder Systems actually makes most of its money from providing "fleet management solutions" and "supply chain solutions" to commercial customers -- both of which are more profitable than simply renting out moving vans to homeowners. In fact, last quarter, Ryder CEO Robert Sanchez credited the company's flagship fleet management division with driving "earnings above the high end of our forecast range" -- earnings that beat Wall Street's best estimates for the quarter.
Expect Ryder to keep growing its profits, too. At last report, Wall Street investment banks were predicting 13.5% annualized growth for Ryder over the next five years, a number that should easily beat the average sub-10% growth rates expected elsewhere among S&P 500 companies.
Ryder also trumps the competition on valuation and dividends. Ryder stock trades for less than 19 times trailing earnings. (The average S&P stock costs nearly 25 times earnings). And Ryder pays its shareholders a 2.3% dividend yield -- 25 basis points better than the average 2.05% yield on the S&P. Even if the growth expectations don't pan out, below-market prices and above-market dividends should help cushion the blow.
