There's no doubt that the stock market's volatility keeps many investors tossing and turning at night, wondering if their investments will fulfill their promises. Does that sound like you?
If so, it's time to add some strong new holdings that can almost guarantee success if you commit to a buy-and-hold strategy. Three successful Motley Fool contributors share with you their top stocks for guaranteeing a good night's sleep.
It's almost an economy all by itself
Chuck Saletta (Berkshire Hathaway): Warren Buffett's incredible investing prowess was honed by his decades at the helm of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B). Under his guidance, the company transformed from a struggling textile manufacturer to the insurance giant and diversified holding company it is today.
Although Buffett is closer to the end of his tenure at Berkshire Hathaway than the beginning, there are good reasons to believe the company will be worth owning for a long time to come. For one thing, Buffett famously compared a company being acquired by Berkshire Hathaway to that company getting its own wing in the Metropolitan Museum.
What he meant by that is companies are generally allowed to continue operating pretty much independently, even after they become a Berkshire Hathaway subsidiary. That independence means those subsidiaries will likely be able to continue operating that way even after a new CEO is in charge of the parent company.
Berkshire Hathaway subsidiaries include companies involved in the power generation, food, furniture, clothing, railroad, housing, and automotive industries -- among others. That diverse collection of businesses practically makes up a miniature economy in and of itself. That provides reason to believe that even if there is a recession, at least part of the company will continue to perform well.
On top of those subsidiaries -- along with billions of dollars of investments in public companies -- Berkshire Hathaway's primary business is insurance, which is all about pricing risk. As long as they continue to do a reasonably good job of that over time, the insurance operations should also continue to generate cold, hard cash.
All that cash generation should provide investors plenty of reason to be able to sleep at night without too much worry about their holdings of Berkshire Hathaway. As if that weren't enough, its shares are available at a fairly modest 1.3 times book value and less than 16 times its trailing earnings. That looks like a very reasonable price to consider paying for an incredibly strong company with so many ways of generating cash.
No sleeping pill needed with this blue chip
Barbara Eisner Bayer (Johnson & Johnson): After washing my face with Neutrogena products, putting a Band-Aid on my paper cut, and taking Motrin for my aches and pains, I go peacefully to sleep knowing that an investment in Johnson & Johnson (NYSE:JNJ), which makes all those products, will help me sleep tight. The largest healthcare company in the world is not a high-growth stock, but it's been around since 1886 and shows no signs of winding down its business any time before I run out of breath.
The company is a Dividend King, which means it's raised its dividend for at least 50 consecutive years, so even if it bumps into obstacles -- as it always has and probably always will -- its current dividend yield of close to 2.5% will continue paying me to own the stock, no matter what drama is surrounding it.
While most people know J&J as a consumer staples stock, that's a very small piece of its business. It's a leader in pharmaceuticals and medical devices, as well, and has hundreds of subsidiaries around the world. Only half of J&J's sales come from the U.S., which helps spread out its risk.
Its coronavirus vaccine, which is currently awaiting approval by the Food and Drug Administration, is an important part of its future, as it requires only one dose and doesn't have the storage challenges of Moderna's and Pfizer's vaccines. The irony, however, is that the company is so large, it probably won't be significantly impacted by vaccine revenue.
There have been legal problems in the company's past -- too many to enumerate here -- but J&J's management has always landed on its feet. The same is occurring now with lawsuits about its talcum powder, but J&J keeps appealing and getting the verdicts reduced. Management has always responsibly led the company through these maelstroms, and J&J continues to grow. But these issues in no way affect the long-term viability of the company.
The bottom line is that J&J is very profitable and shows no signs of slowing down. And if all this hasn't convinced you that it's a company you can buy and hold for the long term and not worry about, Warren Buffett owns it and is a big fan. If that won't help you sleep well at night, I don't know what will.
Eric Volkman (Target): The stock that will help me sleep soundly is good old Target (NYSE:TGT). Few investors need any introduction to the storied retailer -- probably because you visit your local Target at least once in a while.
This, right off the bat, says a lot about the durability and the ubiquity of the big retailer. It also says something about its talent for giving shoppers what they want, when they want it. Think of it: Have you ever been to a Target and not found what you were looking for, or at the minimum, a comparable product?
Target delivers, and it's been delivering for a long time. So it's no surprise that, in the face of both the Retail Apocalypse and the coronavirus pandemic, Target has remained a go-to store for a great many shoppers.
People strapped on their masks and visited their local store (at the proper social distance, thank you!) in droves in the company's most recently reported quarter, pushing revenue up by 21% year over year and sending headline net profit nearly 44% skyward.
And that's during a pandemic, no less. Not many decades-old businesses can post those kinds of numbers, particularly in a historically low-margin sector with an apocalypse constantly looming over its head.
Is anyone still worried that e-commerce rivals pose a threat to Target's existence? Forget it. The company is not only surviving in the age of Amazon but thriving.
E-commerce for Target is rocket fuel, thanks to an online store that's just as easy to navigate and well-stocked as the brick-and-mortar versions. The company's digital comparable sales trajectory (up 155% in Q3) is sure to come earthward at some point, but at the moment, it continues to be a shooting star.
Another big factor that should give investors a nice, comfortable rest is Target's dividend. Not only has the company paid one on a regular basis for decades, but it's a Dividend Aristocrat -- one of the handful of S&P 500 index stocks that has raised its payout at least once per year for a minimum of 25 years running. Target's streak is 49, and given its recent fundamentals, that's not stopping any time soon.
This recent performance and that ever-growing dividend have not escaped the market's notice. Target, as a best-in-class retail stock during the pandemic, has been on a real tear, rising 63% over the past year (by comparison, the S&P 500 has grown only 11%, even with Target helping it climb).
The dividend yield (1.4%) could certainly be higher and the forward P/E (22.2) could be lower, but this is a solid, reliable company that has proved it's capable of hitting lofty growth numbers, even at the most challenging times. I feel it has more room to run, and I like that dividend.
If I were an investor in Target, I'd look forward to many nights of fine, dreamy sleep with this company in my portfolio.