We're in the midst of a lot of seasons right now: summer vacation season, back-to-school shopping season, even election season. With so much to think about, don't forget that every season is stock-buying season! Committing to regularly purchasing shares of top companies can help you beat the market.
This season, though, bargains seem tougher and tougher to find. Three stocks that still look compelling are steelmaker Nucor (NUE -1.08%), energy specialist NextEra Energy Partners (NEP 2.99%), and trash hauler Waste Management (WM 0.79%). Here's why now is a good time to pick up shares.
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Durability
Steelmaker Nucor has long been a standout of the American steel industry. It produces steel from scrap metal in electric arc furnaces, as opposed to the traditional process of melting iron and other metals in blast furnaces, which are costlier and less energy-efficient to operate.
As you can guess, its cheaper and more cost-effective operations have allowed Nucor to outperform legacy steelmakers like former Dow component United States Steel. Nucor is now the largest steelmaker in the U.S. by market cap, even though its share price has fallen more than 20% so far this year.
Most steel stocks have done poorly in 2020, as the market expected the economic recession and trade issues to weaken demand. However, Nucor beat expectations -- and its own guidance -- in Q2 2020, despite those issues. Now, the company is reversing some of its capital spending cuts, which should help it grow. With a strong outlook and a dividend currently yielding 3.7%, now is an excellent time to invest in this powerhouse steelmaker.
Growing up fast
Like Nucor, master limited partnership (MLP) NextEra Energy Partners is currently yielding more than 3% (3.4%, to be exact). Unlike Nucor, NextEra's unit price -- the MLP equivalent of share price -- has outperformed the S&P 500 in 2020, up 17.6% to the index's 2.1% gain.
That's not surprising, since the sorts of infrastructure projects NextEra operates -- including gas pipelines and power generation facilities -- are critical to providing consumers with the energy they need, regardless of the current economic situation. That allowed the company to churn out $166 million in cash available for distribution (CAFD) in Q2 2020, up 45.6% year over year.
Management thinks that growth will continue. It expects to be able to increase its distribution -- MLP-speak for dividend -- by 12% to 15% per year through 2022 even if it doesn't complete any new acquisitions. With acquisitions, management thinks that rate could be sustained through 2024.
Even though NextEra's unit price is near an all-time high, its growth plans make it an excellent choice for investors looking for dividend growth.
These three stocks have performed very differently from one another so far in 2020. NUE data by YCharts.
Back to business
While Waste Management provides an essential service -- trash hauling and landfill operation -- it still took a hit as the coronavirus pandemic prompted states to issue stay-at-home orders, and businesses encouraged employees to work from home. Waste Management's commercial and industrial business lines suffered after trash pickup was no longer needed at empty office buildings and shuttered factories.
Despite a slight uptick in residential collection revenue and earnings, Waste Management's overall revenue fell 9.8% year over year, while per-share earnings slid 19.1%. Small wonder, then, that the stock is down 4.4% so far in 2020. Its dividend yield, at least, has jumped to 1.9%.
Even though the company underperformed in Q2, CEO Jim Fish believes the worst is behind it, now that many factories and businesses have begun operating again. "We saw robust improvements in volumes and earnings each month as we progressed through the quarter with June standing out as the strongest month," he said in a press release.
Waste Management's share price and price-to-earnings ratio have been slowly creeping higher since April. Currently, its P/E sits at about 28.8, which is nearing the upper end of its five-year range. At 30 times earnings, I'd consider the stock overvalued. That's why now looks like a good time to jump into this longtime outperformer.
The bargain bin
None of these three stocks are what I'd call "screaming" bargains, but they look like good values in today's market, and all of them have excellent growth potential moving forward. Of course, the investing environment is very uncertain right now; it's possible they could all see their prices tumble if the broader market or the global economy takes another hit.
Investors shouldn't let fears of a falling market keep them from putting money into top-quality stocks, though, and Nucor, NextEra Energy Partners, and Waste Management seem to fit the bill.
