If you are only looking to put $100 each in three stocks, there is a good chance that you are relatively new to the world of investing. As such, it makes sense to use the opportunity to learn about investing while making money.
With that assumption in mind, I think UPS (UPS 1.81%), General Electric (GE 1.44%), and Fortive (FTV 1.09%) are stocks worth taking a closer look at. Investing $100 in each of these three stocks won't get you a significant amount of shares, but it will serve as a start to an investing life that could bring significant wealth in the future. You might also get some insight on how your stock choices can affect your overall investing strategy. Here's why.
1. UPS
This company needs no introduction, but the investment proposition for this well-known package delivery service does. It's no secret that e-commerce deliveries are a growth industry, but what's less understood is that delivery companies often struggle to make money on certain types of deliveries -- for example, inefficiently packaged or bulky items delivered to hard-to-find residential addresses. Indeed, UPS and FedEx have faced challenges over the last decade in terms of ensuring that delivery growth translates into profit margin expansion. At the same time, they have been pressured to increase investment in building capacity to handle delivery growth.
The good news for UPS is that under CEO Carol Tome (appointed in 2020), the company is now more focused on getting the most possible out of its existing assets and being more selective over what it deliveries rather than chasing delivery volume growth for its own sake. So far, this strategy is working, and UPS is generating impressive profit and profit margin expansion even as volumes decline.
At the same time, the company's focus on targeted end markets (small and medium-sized businesses, healthcare, business-to-business) is creating profit expansion opportunities. In fact, despite a challenging 2022, the company continues to track ahead of its 2023 targets laid out in 2021 at its investor conference.
UPS stock is suffering this year, along with the rest of the industrial sector over concerns about a recession, but history suggests the economy will get back to growth in the future. For potential investors, it's fascinating (and can be informative) to invest in a company that's generating earnings growth by transforming how it operates in its end markets.
2. Fortive
Fortive offers testing and measurement solutions across a range of industries. The common theme is that its solutions help customers improve their everyday working environment. As such, it's not a household name, but there's no rule in investing that says you have to invest in companies whose products you use directly.
Buying the stock relies on critical fundamentals that new investors can learn and use across their investing life. Since Fortive's prospects are described in more detail elsewhere, it will suffice to pull out three key factors. The first is it operates in relatively niche markets and commands high profit margins that Wall Street analysts believe will expand in the future. Critical drivers of that margin expansion include the increasing importance of higher-margin software in its sales.
Data by YCharts.
Second, the company is improving the quality of its earnings by growing its recurring and software revenue. This should give its earnings more resilience in a recession.
Finally, the increasing use of automation and digitization in the industrial environment plays to Fortive's strengths. As investment in automation and digitization operations grows, the need to monitor, track, and measure assets in real time will increase. The benefit here is that users can analyze the data to produce actionable insights.
As such, Fortive has strong secular trends, and investors can look forward to years of growth ahead. Moreover, it represents investing in a company that's improving its underlying metrics (profitability, recurring revenue, etc.) -- usually something that pays off for investors over the long term.
3. General Electric
Industrial giant General Electric evolved from a growth stock into a value stock option. That suggests investors should analyze its operations a bit differently these days. GE is having a challenging year, beset with supply chain issues and threats to its near-term guidance. In particular, its renewable energy and healthcare businesses suffered from supply chain disruptions. As a result, the company will struggle to meet its implied free cash flow guidance this year.
Still, it's hard not to think the stock is oversold. For example, in the Investor Day presentation in March, management outlined plans to hit $7 billion in free cash flow (FCF) in 2023. While accepting that the target may need to be reduced in the light of challenges in 2022, it's worth noting that GE's market cap is just $71.7 billion now; anything close to the $7 billion in FCF in 2023 will make GE look like a great value. Moreover, the healthcare spinoff in January could be worth some $50 billion in enterprise value (market cap plus net debt), or EV. Given that GE's EV is currently just $83.4 billion, the stock looks a great value. After all, GE Power is now profitable, and GE Aviation is traditionally GE's most significant earnings and cash flow generator.
GE stock looks like a great value whichever way you cut it, representing how investors can calmly take advantage of a value opportunity while the market panics.
