Even with markets near all-time highs, stocks are a good way to create long-term wealth. But thinking through a strategy is more important when it's difficult to buy at bargain prices.
Part of a strategy that makes it emotionally easier to stay invested through a market correction is to focus on some downside protection. That can come in the form of income, a solid balance sheet, or a large moat for the business. If you have $3,000 to invest right now, NextEra Energy (NEE -0.75%), Garmin (GRMN), and Walt Disney (DIS -1.33%) can give you each of those, along with long-term growth.
A sector worth owning
It only makes sense to have some money invested in renewable energy right now. The only question may be how exactly to do it. There are choices across the risk spectrum, but as a foundation, NextEra Energy is a good choice as both a leader in the growth portion of the sector, and an income provider from its utilities.
NextEra owns Florida Power & Light, the largest regulated electric utility in the U.S. by retail megawatt-hour sales, as well as Gulf Power, which serves northwestern Florida. Its other subsidiary is NextEra Energy Resources.
NextEra Energy Resources is the global leader in wind and solar power generation. It currently has a backlog of renewable projects that's larger than its existing portfolio. That gives NextEra Energy confidence to predict between 6% and 8% annual earnings growth through 2023. The stability of NextEra's utilities allows it to expect about 10% annual dividend growth through next year. So the business gives investors income as well as ownership in the growth of the renewable energy sector.
Balance sheet backstop
Investors should always consider a company's financial position. That's especially true when stocks are trading at rich valuations, and an investor may want additional protection. Garmin, the maker of outdoor recreation devices, has a pristine balance sheet.
As of the quarter ending Sept. 26, 2020, Garmin had approximately $2.7 billion in cash and marketable securities and no debt. That cash position translates to more than 11% of the company's total market capitalization. Garmin also generated $236 million in free cash flow in the third quarter, and that was after increasing spending on research and development (R&D) by 18%. That cash more than covers the company's dividend, which gives investors a 2% yield.
The R&D spending helps fund the company's innovation. Its products are as popular as ever, as the 19% year-over-year revenue growth showed in the third quarter. Other than a pandemic-induced dip in early 2020, revenue growth has been strong for years, and there's no sign of that reversing.
A unique business
A large moat is especially important for an investment when buying at relatively high valuations. Disney's moat is unique in that it comes from its group of businesses themselves. The interconnectivity of its film business, theme parks, cruises, and direct-to-consumer media is unmatched.
While many areas of Disney's business are still struggling with theme parks restricted, cruises suspended, and movie releases delayed, its Disney+ streaming service has been an overwhelming success.
At its investor day presentation in December, management said growth in the service "exceeded our wildest expectations" with 86.8 million subscribers as of Dec. 2, 2020. CEO Bob Chapek added that it is a "one-of-a-kind service featuring content only Disney can create."
Investing for the long term
With markets trading near highs, investors should keep in mind that wealth generation occurs over long periods. But trying to time the market by holding money while awaiting the perfect entry point is rarely a successful strategy. Instead, investors should focus on solid businesses, and lean toward companies with added downside protection that dividends, solid balance sheets, and unique offerings can provide.
If you have $3,000 to create a diversified group right now, NextEra Energy, Garmin, and Disney should fit the bill.