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Ignore the Short Squeezes and Invest in These Stocks for the Long Term

By Matthew DiLallo, Neha Chamaria, and Reuben Gregg Brewer - Updated Feb 6, 2021 at 2:07PM

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These sleepy stocks could enrich patient investors willing to hold for the long term.

Short squeezes are the latest get-rich-quick fad catching the attention of the investor community. Hedge funds that shorted popular stocks are getting burned as small investors band together to force them to cover their positions, sending share prices on an exaggerated run. While some speculators have scored a quick buck by getting in and out of these trades, others have gotten burned badly. 

However, because you only live once, it doesn't make sense to wager everything on a stock trade that could end in financial ruin. That's why we like investing in companies that have a high probability of enriching their investors over the long term. Three wealth creators that our contributors think offer a much a better risk/reward profile than the current craze of short-squeezed stocks are global infrastructure giant Brookfield Infrastructure (BIP -0.36%)(BIPC -0.31%), utility Consolidated Edison (ED -0.42%), and trash hauler Waste Connections (WCN -0.82%)

A hand grabbing money that's falling from the sky.

Image source: Getty Images.

A long history of enriching its investors

Matt DiLallo (Brookfield Infrastructure): Brookfield Infrastructure might not have the near-term upside of a stock caught in the crosshairs of a short squeeze. However, the global infrastructure giant has done an exceptional job enriching its investors over the long term. Since its inception in early 2008, the company has generated an annualized total return of 18%. That has absolutely obliterated the broader market as the S&P 500's annualized total return during that timeframe is 10%. To put Brookfield's returns into perspective, a $10,000 investment at its formation would be worth more than $80,000 today. 

Fueling the company's strong total returns over the years has been its ability to grow its cash flow and dividend at above-average compound annual rates of 16% and 11%, respectively. Driving that strong growth rate has been Brookfield's strategy of acquiring stable cash-flowing infrastructure businesses that it steadily expands via bolt-on purchases and organic expansion projects. The company estimates that its embedded organic growth alone will boost its cash flow per share at a 6% to 9% annual rate for the next several years. Meanwhile, additional acquisitions could add an incremental 1% to 5% to its bottom line each year. Those dual growth drivers will provide the company with the fuel to continue increasing its 3.8%-yielding dividend at a 5% to 9% annual rate in the coming years. Thus, Brookfield has a high probability of continuing to enrich its investors by generating market-beating total returns. 

A slow and steady tortoise 

Reuben Gregg Brewer (Consolidated Edison): If the market's current gyrations have you thinking about irrational exuberance, then what better place to turn than a boring utility like Consolidated Edison. Con Ed's business is centered around New York City and its surrounding areas, which is a population-dense region with a cultural appeal that few other locations in the world can match. The global pandemic has blunted this benefit today, but if history is any guide the Big Apple will eventually return to its former glory. Meanwhile, investors can collect a 4.4% yield, which is near the high end of Con Ed's recent historical range.  

ED Dividend Yield Chart

ED Dividend Yield data by YCharts

What's also exciting, in a perverse way, is that Con Ed's business is highly regulated. It needs to get its spending and rate hike plans approved by the government and, in exchange, is granted a monopoly in the regions it serves. That limits growth, but it also means that its capital spending plans are pretty much locked in and will take place regardless of the gyrations in the stock market. At this point the utility has plans to spend nearly $4 billion a year over the next two years, supporting projected rate base growth of around 5% a year.    

Yes, Con Ed is a boring company, but that's how this Dividend Aristocrat managed to string together 46 years worth of annual dividend increases. And, really, doesn't that sound pretty good at a time when the market looks like it's going off the deep end?

A surprisingly good stock to own at all times

Neha Chamaria (Waste Connections): As a long-term investor, you could either pick risky stocks and prepare to stomach volatility, or play it safe and buy some stocks that will grow even during tough times. For example, how about a waste management stock like Waste Connections? Wait, you might want to first see how this stock has performed in the past decade.

WCN Chart

WCN data by YCharts

Surely, you wouldn't have expected a yawn-inducing stock to have more than quintupled in 10 years, would you? That's where a resilient business model and consistent dividend growth comes into play. Waste Connections collects, disposes, and recycles waste, none of which is affected by economic cycles. That, combined with the company's acquisitive growth strategy, has ensured steady revenue and cash-flow growth over the years.

2020, for instance, was a challenging year for nearly every business as the COVID-19 pandemic induced lockdowns stalled operations. Yet Waste Connections' revenue improved marginally by 0.5% during the nine months through Sept. 30, 2020. Although impairment charges hit its bottom line, its adjusted net income was down only about 4% year over year.

More importantly, Waste Connections increased its quarterly dividend by 10.8% in October 2020, marking its 10th consecutive year of annual dividend increases.

With the pandemic's impact on businesses expected to abate this year, I expect Waste Connections to provide an encouraging outlook for 2021 when it releases its 2020 numbers in mid-February. Also, pay attention to management's capital spending plans, as acquisitions will likely continue to be an important value driver for the company. As earnings and cash flow grow, so should dividends, making Waste Connections a really good stock to buy and forget for years.

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Stocks Mentioned

Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
BIP
$60.63 (-0.36%) $0.22
Consolidated Edison, Inc. Stock Quote
Consolidated Edison, Inc.
ED
$94.82 (-0.42%) $0.40
Waste Connections Stock Quote
Waste Connections
WCN
$122.34 (-0.82%) $-1.01
Brookfield Infrastructure Corporation Stock Quote
Brookfield Infrastructure Corporation
BIPC
$71.02 (-0.31%) $0.22

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

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