Please ensure Javascript is enabled for purposes of website accessibility

3 Great Stocks for Your IRA

By Keith Speights - Dec 21, 2017 at 6:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These growth, income, and value stocks are ideal for retirement nest eggs.

Congress has done plenty of dumb things through the years. And that's true regardless of which party was in control. But one of the smartest things passed by legislators was the Individual Retirement Account (IRA). These accounts allow you invest and grow the money tax free with a traditional IRA, or invest with after-tax money but never have to pay taxes on the gains with a Roth IRA. Either option can be fantastic for building your retirement nest egg.

Based on historical returns, it makes sense to put a significant portion of your IRA into stocks. Some investors like to buy growth stocks, which can generate tremendous gains over time. Some prefer income stocks, which pay juicy dividends. And others would rather go with value stocks, which are inexpensive now but should appreciate over the long run. 

But which stocks in each of these investing styles are smart picks? Here's why I think Vertex Pharmaceuticals (VRTX 1.96%), Iron Mountain (IRM 1.31%), and IBM (IBM -0.05%) are three great stocks for your IRA.

Gold egg with IRA written on it on top of $1 bills

Image source: Getty Images.

Growth: Vertex Pharmaceuticals

If you want a solid growth stock to include in your retirement portfolio, check out Vertex Pharmaceuticals. Wall Street analysts think that Vertex will be able to grow earnings by nearly 65% annually over the next five years. The key for the biotech to pull off this tremendous growth is to expand its leadership in the treatment of rare genetic disease cystic fibrosis (CF). I think Vertex will be successful in this effort.

Vertex already has two approved CF drugs on the market in Kalydeco and Orkambi. Kalydeco is on track to generate sales of more than $850 million this year, while Orkambi should make $1.5 billion or more. However, at the beginning of 2017, the two drugs together had an addressable market consisting of less than 40% of all CF patients. 

But Vertex has both a short-term and a long-term strategy to expand its market. The company has pursued additional regulatory approvals for Kalydeco and Orkambi. More importantly, Vertex is advancing new drugs that can treat more patients. The biotech hopes to win FDA approval for its tezecaftor/ivacaftor combo by Feb. 28. Vertex will also begin late-stage clinical studies early next year for triple-combination regimens that could boost the addressable market to 90% of all CF patients. 

Three scientists looking at DNA image

Image source: Getty Images.

That won't be the end of the story, though. Vertex plans to develop gene-editing therapies to help the remaining 10% of CF patients. The company also has partnered with CRISPR Therapeutics to develop gene-editing treatments for sickle cell disease and beta-thalassemia.

Income: Iron Mountain

For those who'd like their IRAs to hold a great income-generating stock, Iron Mountain could be just the ticket. The real estate investment trust's (REIT) dividend currently yields 6.24%. And Iron Mountain expects to grow its dividend payout by at least 4% annually

Understanding Iron Mountain's business model provides a measure of confidence that the company will be able to keep paying such an attractive dividend. Iron Mountain provides records storage and information management services to more than 230,000 customers around the world. Its customer base includes roughly 95% of the Fortune 1000.

Over 60% of Iron Mountain's business is related to storage. Once a customer stores records or data with the company, it's not likely to go through the hassle involved with switching to a different provider. Half of the boxes stored with Iron Mountain have remained in its facilities for 15 years.

While the primary attraction to Iron Mountain is its great dividend, the company is also well positioned for growth. Iron Mountain particularly thinks that emerging markets and adjacent businesses present significant opportunities for expansion. 

Value: IBM

Value investors like to find stocks of solid businesses that are trading at bargain prices. IBM certainly appears to fit the bill. The technology giant began operations way back in 1911 and has successfully navigated massive changes through the years. IBM stock currently trades at only 11 times expected earnings, much lower than most S&P 500 companies.  

It's always prudent to understand why a stock is priced at a low valuation, though. In IBM's case, the stock is inexpensive primarily because the company has reported year-over-year revenue declines for 22 consecutive quarters. Some investors appear to have given up hope that IBM can turn things around. However, better days should be ahead.

In October, IBM CFO Martin Schroeter stated that the company should return to revenue growth in the fourth quarter. Granted, the expected revenue growth will be small, but it's a start. The launch of IBM's new z14 mainframe system will give the company a much-needed boost. IBM is also enjoying sales growth for its cloud computing and "strategic imperative" businesses, which include analytics, mobile, security, and social. 

IBM is also a nice income pick for IRAs. The company's dividend yield currently stands at 3.9%. IBM uses less than half of its earnings to fund the dividend program, giving it plenty of flexibility for future dividend hikes. I think IBM stock's price won't stay this cheap indefinitely -- and its solid dividend pays investors to wait until the rebound.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$141.12 (-0.05%) $0.07
Vertex Pharmaceuticals Incorporated Stock Quote
Vertex Pharmaceuticals Incorporated
VRTX
$287.32 (1.96%) $5.53
Iron Mountain Incorporated Stock Quote
Iron Mountain Incorporated
IRM
$49.33 (1.31%) $0.64
CRISPR Therapeutics Stock Quote
CRISPR Therapeutics
CRSP
$63.79 (4.97%) $3.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.