Retired investors may recoil at the mere mention of the word "inflation," because it means the money they've accumulated in their portfolios will buy less and less of the services and items they need. That's one reason why it's important to have some exposure to growth stocks in your portfolio -- they can help counter inflation's erosive impact on the value of your nest egg.
To that end, we asked three savvy Motley Fool contributors to recommend growth stocks that they think would be smart additions to any retirement portfolio. Here's why they view Abbott Laboratories (ABT 0.15%), Facebook (FB 3.77%), and Rent-A-Center (RCII +2.04%) as great choices to consider buying now.
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A potent mix of income and growth
Eric Volkman (Abbott Laboratories): For a great retirement portfolio stock, let's duck into the laboratory -- Abbott Laboratories, that is.
A healthcare company with roots going back more than 130 years, Abbott has a bulging portfolio of products divided into four categories. In descending order of revenue, they are: medical devices; diagnostics; nutrition; and its outside-the-U.S. business, established (i.e., branded generic) pharmaceuticals. This mix gives the company numerous levers to pull for both growth and income.
Happily, sales in all four categories grew by double-digit percentages on a year-over-year basis in the second quarter (its most recently reported period). The standout segment was diagnostics, thanks to the company's popular COVID-19 testing products. All told, that unit took in nearly $3.25 billion to notch 63% growth.
The average overall age of Americans has been steadily rising for some time, and in the coming years, elderly people will form an increasingly larger share of the population (according to numerous demographic forecasts). COVID-19 aside, demand is growing organically for the many medicines, devices, and nutrition products in Abbott's catalog. Sales of its established pharmaceuticals grew by 16% in Q2, while revenues from its nutrition unit rose by 12%. And both of those results pale in comparison to the more than 51% growth it saw in device sales.
A long-established company like Abbott deserves a particular tip of the hat for managing such robust growth across the board.
Compared to many of its peers in the healthcare realm, Abbott doesn't spend as much capital on research and development or marketing -- but it doesn't need to. Its products generally have good reputations, and are purchased by individuals and institutions that have long relationships with the company. This helps Abbott deliver fairly consistent profits. It's only on rare occasions that it posts a bottom-line loss.
That habitual profitability provides plenty of cash for shareholder-pleasing moves such as paying a dividend. Abbott is one of the top healthcare-sector payers of such remuneration; in fact, with a dividend-raising streak of 49 straight years, it's just about to hit Dividend King status. Last month, it declared its 391st consecutive quarterly disbursement.
With the weight of that much history behind it, investors can be confident that the payouts will keep coming. At current share prices, the dividend yields 1.5%.
Abbott has been an important company in the U.S. healthcare sector for decades, and its positioned to remain one for many more. It can expect further revenue growth based on the demographic trends alone, and investors should anticipate more annual bumps to its ever-reliable payout.
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When opportunity knocks, open the door
Barbara Eisner Bayer (Facebook): If you're a retiree and depend significantly on your investment portfolio for income, it's natural that you'd want to be conservative about which assets you hold. Declining values will cut directly into your immediate ability to pay the bills.
But even cautious retirees need to have a portion of their portfolios in growth stocks. Sure, having all fixed-income holdings minimizes the risk that you'll lose money, but it also maximizes the risk that the growth of your portfolio won't keep up with inflation, and makes it more likely that you'll run out of money before you run out of time.
While no one has a guaranteed technique for detecting when a stock has hit a low or high, what one can often spot is when a company is going through a challenging period that has caused investors to give its share price a haircut. When you see opportunities like that, it's time to pounce.
Facebook is a growth stock that's currently under attack, but the tech giant will most likely survive and thrive -- which means now's a good time to add it to your retirement portfolio.
If we've learned anything from Facebook's hours-long global outage earlier this month, it's that most people can't live without at least one of the company's platforms. And when I say "most people," I mean the 3.51 billion monthly active users who flock to its family of apps, including its namesake social media site, Instagram, and What's App.
However, as most people are already aware, Congress recently heard a host of unflattering allegations about the social media powerhouse from whistleblower and former Facebook product manager Frances Haugen. That's very bad publicity, of course, and it appears to have triggered something of a sell-off of the stock -- which makes it an opportune time to buy. But remember: Every story has two sides, and while Facebook may look guilty in the court of public opinion, the company -- which has denied the allegations -- hasn't yet had its day in court (or in this case, Congress).
Facebook appears optimistic that it will overcome the challenges it faces, including regulatory issues and antitrust probes. It's also looking forward to its future in virtual reality and augmented reality. CEO Mark Zuckerberg plans to build what he calls a "metaverse" that will take advantage of those technologies. And while many people don't like the guy, it's hard to dispute that he's a visionary who has built quite an extraordinarily successful company.
Facebook is currently trading about 15% below the all-time high that it hit in August. If you're one of those 3.51 billion who has a habit of using one or more of the company's platforms -- or if you're just looking for a growth stock that will be there and continue growing and innovating through your entire retirement -- this seems like a good time to add the social media juggernaut to your retirement portfolio.
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A company that should do well in uncertain times
Chuck Saletta: (Rent-A-Center): The rent-to-own industry that Rent-A-Center competes in is one that people tend to turn to when their futures aren't all that certain or solid. After all, it offers people a way to get what they need even if they have "less than perfect" credit, or even no credit at all.
The way it works is that Rent-A-Center offers customers the opportunity to make seemingly reasonable weekly payments to buy appliances, furniture, or other somewhat high-dollar items. If you make all the payments on time, you get to keep the item. If you don't, Rent-A-Center takes it back.
The company makes its money by charging high prices for its wares, setting high interest rates and fees on its financing, and by re-renting items that get returned. For instance, picking a refrigerator at random off of its site, the Rent-A-Center "same as cash" price is $1,763.52, vs. $1,399 for an identical model at a familiar national retailer. For consumers not paying cash, the Rent-A-Center price is $29.99 per week for 98 weeks -- or $2,939.02 in total.
With inflation lately higher than it has been in many years, the most recent jobs report showing a surprisingly low number of jobs filled, and consumer confidence tumbling, the specter of stagflation is making a comeback. Add in the fact that it looks as if the Federal Reserve is preparing to start tightening credit again, and you have all the conditions for an almost perfect economic storm. And people on the financial brink are just the demographic that tends to use Rent-A-Center's services.
Analysts are expecting annualized earnings growth of more than 30% from Rent-A-Center over the next five years, compared with flattish earnings over the past five. The business is trading now at around 15 times its trailing earnings, a valuation that will look like a bargain if that forecast growth materializes.
The combination of a reasonable valuation, decent expected growth, and a business model that can do well in tough times makes Rent-A-Center a stock worth considering for retirees' portfolios.
