While the earliest of the baby boomers have retired or are starting to, beginning within the next 15 years the vast majority will be putting in their retirement papers. Finding stocks now to help build their retirement portfolios that will allow them to attain their financial goals is of critical importance.
An evolving tech giant
Leo Sun (Microsoft): Microsoft is often considered a slow-growth tech stock, but the company perked up over the past three years under the leadership of CEO Satya Nadella. Unlike his predecessor Steve Ballmer -- who milked Windows and Office license revenues and missed crucial technological shifts -- Nadella is transforming Microsoft into a "mobile-first, cloud-first" company.
Under Nadella, Microsoft gave out Windows 10 as a free upgrade for a year, invested heavily in the growth of cloud-based services like Azure and Office 365, pivoted Microsoft's mobile strategy from hardware to cross-platform software, and expanded the Surface family to showcase the 2-in-1 features of Windows 10. All these moves helped Microsoft shift toward more sustainable subscription-based revenues.
In 2015, Nadella set a target for $20 billion in annual cloud revenues by the end of fiscal 2018, which would account for about a fifth of its top line. Microsoft could now easily exceed that target, with its commercialized cloud revenue hitting an annual run rate of $18.9 billion last quarter.
Analysts expect that growth to boost Microsoft's revenue by 8% this year, although its earnings could dip 3% this year on higher cloud investments. But looking ahead, its revenue and earnings are expected to respectively rise 8% and 13% next year. Microsoft also pays a 2.3% yield, which is supported by a payout ratio of 56% and 13 straight years of annual dividend hikes. It also trades at a reasonable 24 times next year's earnings. Therefore, Microsoft offers boomers a solid balance of stability, income, and growth for their golden years.
So much more than search
Danny Vena (Alphabet): According to the Center for Disease Control, 65-year-olds retiring now can expect to reach 84.4 years old, or live an additional 19.4 years. That's great news, but for baby boomers it means their retirement funds need to last longer. One company that could help accomplish that goal is Alphabet.
Known for its flagship Google search, Alphabet makes the majority of its revenue from advertising, accounting for more than 99% of the $21.5 billion in its most recent quarter. Its dominance in online advertising is growing: In the third quarter of 2016, it's estimated that Google accounted for 54% of all new advertising growth during the quarter.
While the lion's share of revenue still comes from advertising, Google has several other potentially lucrative growth areas. Its Waymo self-driving car unit has logged more than three million miles of autonomous driving and is widely acknowledged as the leader in self-driving technology. It's currently conducting a public trial with its Early Rider Program in the Phoenix, Arizona metropolitan area.
Google also has one of the world's most advanced artificial intelligence (AI) programs, which underlies its search and cloud computing and powers its voice-activated Google Assistant. Its DeepMind AI unit beat the reigning world champion at the ancient Chinese game of Go, a feat many believed impossible just a few short years ago.
The combination of stability offered by its dominance in digital advertising and potentially explosive growth in the nascent areas of self-driving cars and artificial intelligence should help baby boomers achieve their goals.
A pipeline of opportunity
Rich Duprey (AbbVie): Rheumatoid arthritis therapy Humira has been critical to the success of AbbVie over the years. The blockbuster biologic generated over $16 billion in revenues last year, or 63% of AbbVie's $25.6 billion total. While the knock on Humira is that revenues from the drug will likely plunge when generic drugs hit the market, the drugmaker is constantly researching new indications for the therapy.
AbbVie also has an impressive pipeline of drugs, including Imbruvica, which reportedly has the potential to become one of the top five cancer drugs on the market. Other possible winners include cancer treatments Rova-T and Veliparib, as well as ABT-494, an autoimmune-disease drug.
The biggest threat to Humira has been the potential for Amgen's (NASDAQ:AMGN) biosimilar Amgevita, which won FDA approval last year but was bogged down in patent litigation between the two biotechs. However, an agreement between AbbVie and Amgen will have Amgevita's introduction to the U.S. market delayed until 2023, while it won't hit European markets until next year.
With a dividend of $2.56 per share that currently yields 2.8%, AbbVie is a stock for America's graying baby boomers that will help them meet their retirement goals.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Danny Vena owns shares of Alphabet (A shares). Leo Sun has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.