Bitcoin tokens have gained an astonishing 550% over the last year, but those extraordinary returns come with a heaping side of risk. For example, the same cryptocurrency is trading 61% below the peaks it reached as recently as mid-December, 2017. Gambling or investing? So far, digital currencies stand closer to the Las Vegas Strip than to Wall Street.
So we asked a few of your fellow investors here at The Motley Fool to share some investment ideas for those who don't want to deal with bitcoin's high-octane roller coaster. Here's why our panelists would recommend Canadian National Railway (NYSE:CNI), Alibaba Group Holding Ltd. (NYSE:BABA), and The TJX Companies (NYSE:TJX) right now.
A recent bumpy ride, leading to trading on the cheap
Tyler Crowe (Canadian National Railway): For years, Canadian National Railway has been the gold standard of railroad companies in North America. The company has consistently been the continent's most efficient operator; it also has the only rail network that touches the Atlantic, Pacific, and Gulf Coasts.
This past quarter, though, the company hit a stumbling block when winter weather strained its capacity to ship both Canadian grain and hydraulic fracturing sand. As a result, the company took a hit on the operations side. The issues led to two straight quarters of lower-than-expected results and the abrupt resignation of the CEO. As a result, the market has not been kind to the stock -- shares are down about 10% since the beginning of the year.
While these issues need to be addressed, they are by no means company-killers. Even after accounting for these service disruptions, the company's operating ratio was 60.4% -- still a respectable result, if not up to par with CN's normal results. Also, it's worth noting that carloads were up 11% in the fourth quarter compared to the prior year, so it's not as though customers are fleeing from the rail company (after all, rail customers are pretty captive).
The investment thesis for Canadian National isn't really detracted from by this recent operating hiccup, although if problems continued for several quarters in a row, it would be worth checking up on. For now, though, investors have an opportunity to jump into one of the best rail companies in North America, at a slight discount from what you would normally expect.
Tons of predictable growth
Anders Bylund (Alibaba Group): With bitcoin, you never know what you'll get. With Alibaba, you get a clear-cut growth story for at least the next five years -- and maybe decades.
Alibaba is a major provider of back-end services for e-commerce businesses in China. Through its Tmall and AliExpress portals, vendors can buy and sell all sorts of physical goods for further distribution throughout China and all around the world. When you pick up the latest hot gadget from private sellers on eBay or Amazon.com, for example, chances are good that your fidget spinner or toothpick crossbow passed through Alibaba's infrastructure at some point. Around this rock-solid framework, Alibaba also operates cloud computing services, an online media studio, a travel booking site, and much more.
The vast majority of Alibaba's business today comes from the Chinese market. That's good enough for a $34 billion annual revenue haul and nearly $19 billion of free cash flow. Any online giant here in the West would kill for cash margins like these. And sales are growing at 48% per year, and the company is dipping its toes into international operations, and its "new retail" segment wants to tap into the 80% of sales that don't happen online, and it's kind of hard to cover all the upsides of this fantastic business.
On top of all that, Alibaba investors are tapping the brakes on the stock right now. Share prices have only increased by 7% over the last six months, and the stock is on sale for a very reasonable 28 times forward earnings.
That's why my own portfolio, which contains some bitcoin, has a much larger Alibaba stake -- at a ratio of 1 to 6. The Chinese giant is just a much better long-term investment.
A valuable off-price retailer
Demitri Kalogeropoulos (TJX Companies): One of the biggest knocks against bitcoin is that its valuation can swing wildly depending on the shifting judgments of some highly speculative market participants. Stocks aren't as vulnerable to this risk, because the businesses they represent own assets and generate profits -- all of which carry concrete real-world value.
TJX Companies is a great example of this valuation premise at work. The retailer manages a network of over 4,000 stores in nine countries, led by the flagship T.J. Maxx and Marshall's franchises in the core U.S. segment. Its off-price business model is a testament to the type of stable, market-beating returns that can pay huge dividends to patient investors. In fact, the company recently wrapped up its 22nd consecutive year of positive comparable-store sales, as profitability expanded.
CEO Ernie Herrman and his team are targeting another year of modest revenue gains and improving profits in 2018, as they take advantage of things like manufacturing overruns, order cancellations, and store liquidations to acquire quality merchandise at deeply discounted prices. That success should put the retailer within reach of Dividend Aristocrat status, which requires 25 consecutive years of payout raises.
Yes, these gains tend to take a while to materialize. But there's far less risk that TJX Companies' stock will plummet based solely on changing moods on Wall Street.