At The Motley Fool, we're buy-and-hold investors, but before we can hold a stock, we have to pick the stock. So our analysts are always on the hunt for excellent investment ideas.
And every week, some businesses stand out from the crowd, which is why every Motley Fool Money episode includes host Chris Hill asking his guests -- this time senior analysts Andy Cross, Ron Gross, and Jason Moser -- which companies they have their eyes on and why. Their picks for this episode: freight railroad behemoth Union Pacific (NYSE:UNP); spice leader McCormick, (NYSE:MKC) and homebuilder NVR (NYSE:NVR).
A full transcript follows the video.
This video was recorded on Jan. 18, 2019.
Chris Hill: Let's get to the stocks on our radar this week. Our man behind the glass, Steve Broido, is going to hit you with a question. Ron Gross, you're up first. What are you looking at this week?
Ron Gross: I'm going to go back to Union Pacific, which operates one of the two largest railway networks in the U.S. They operate west of the Mississippi, connect about two-thirds of the country by rail. A unique competitive position as a result of their behemoth nature, for sure. They're constantly getting better, more efficient. They've got a rising dividend, aggressive share repurchase. They've paid dividends on the common stock for 119 consecutive years.
Gross: Years. They've been around a while. So for those dividend investors out there, this is a good one. Solid company, and they continue to increase the dividend.
Hill: What's the ticker?
Gross: The ticker is UNP.
Hill: Steve, question about Union Pacific?
Steve Broido: It seems like gas prices continue to rise. I would imagine that helps Union Pacific. Am I right?
Gross: You are right. But the strength of the economy is largely what their results are based on. Let's keep an eye on the economy here. The downturn in the coal industry has hit the rail industry as well, but they still continue to produce pretty impressive results.
Hill: Another benefit, if you're investing in a railroad, pretty high barrier to entry.
Gross: For sure. They're not building a lot of new ones.
Hill: It's not like the four of us can just go out and start our own railroad. Jason Moser, what are you looking at?
Jason Moser: We're talking about 90% of the flavor and 10% of the cost, my favorite spice maker, McCormick, ticker MKC. Earnings are out next Thursday, Jan. 24th. I'm going to be watching to see signs that the Franks and French's acquisition is still going along nicely. All signs point to success there.
I really found it interesting last quarter, they noted that the company itself has added distribution to 20 new countries year to date, including larger markets like India. I want to see them tie a bow on that and really understand how much opportunity is left out there from a global perspective. Wouldn't be surprised to see these guys try to pull off another acquisition at some point. It sounds like they're getting this RB Foods one through.
Hill: Steve, question about McCormick?
Broido: McCormick seems to totally own the spice category. What do you do once you own a sector? What do you do next?
Moser: You do one of the things they did, in making smart acquisitions. The RB Foods acquisition gave them access to more of the condiment side of the flavor market. I think that's ultimately what they're trying to do, is expand their flavor portfolio beyond just spices. I'd keep an eye out for potentially a new acquisition.
Gross: I want a flavor portfolio.
Hill: Andy Cross, what are you looking at?
Andy Cross: NVR, the home builder that's located just up the street in Reston, Virginia. Reports earnings next week. $9 billion market cap. The stock peaked at $3,600 last year. Yes, $3,600. It's now at $2,500, down about 30%. It's the class of the home builders, which have really struggled as interest rates have increased. I'm looking to see what they're saying about their new orders, which were up about 2% last quarter. Their average selling price went in the other direction, down 2%. Symbol is NVR.
Hill: Steve, question about NVR?
Broido: It seems like home prices are going down as interest rates rise and sales seem to be decreasing. Why am I interested in this company?
Cross: The stock is cheaper. They're the class of the industry. When you think about the returns on capital this business makes and the way they go about running it, when I look at the next five years, and the stock has outperformed the industry and the market over the last five years, I expect more of the same.
Hill: A home builder, a spice maker, a railroad, what do you want to add to your watch list, Steve?
Broido: I like that dividend. I'm going with Ron and Union Pacific.
Hill: I really thought you were going to say 119 quarters.