There are many attractive options available for investors to choose from on the stock market. And those potential buys look even more attractive when a broader market drop reduces stock prices, as it has recently. Personally, I prefer businesses with strong brands, ample cash flow, and the potential for market-thumping growth over many years. It's a bonus if the company pays a steadily growing dividend, too.
Let's look at a few stocks that meet these criteria and are trading at an attractive price today. Read on for good reasons to like Coca-Cola (KO +1.00%), Costco Wholesale (COST +1.40%), and Microsoft (MSFT +1.86%) right now.
1. Coca-Cola
Coca-Cola has just about everything an investor could want in one stock. It enjoys a dominant market position, industry-leading profitability, and it has plenty of cash to go around. It's no slouch in the growth department, either. Organic sales were up 11% in the most recent quarter while adjusted earnings expanded at the same rate.
NYSE: KO
Key Data Points
I like Coca-Cola for its stellar profit margin that recently expanded to 32% of sales. The beverage giant also generated $4 billion of free cash flow over the last two quarters, giving management flexibility to invest in growth initiatives and maintain the company's marketing lead. And the stock price has declined in 2023 despite those excellent metrics. On top of all that, its dividend yield is sitting just over 3% right now, giving investors immediate income to enjoy as they wait for those capital gains to accrue over time.
2. Costco
The main thing to remember about Costco is that it isn't really a retailer. It's in the membership business. Keeping that fact in mind will help make sense of why Costco's shares trade at such a premium compared to rivals like Walmart and Target.
Unlike these peers, Costco gets most of its annual earnings from subscription fees rather than product sales. That cash flow helps the company maintain the pricing advantage that drives so many shoppers to its aisles every day. It also translates into much more stable earnings than a retailer can promise, especially given that over 90% of Costco's members renew their subscriptions each year.
I'm a longtime member myself and have been a happy shareholder for many years. I wouldn't hesitate to buy more of the stock at today's prices, either.
3. Microsoft
Microsoft's share price has dropped a bit from recent highs, yet it is still priced at a premium. Investors are paying 11 times annual sales for the tech giant right now, up from below 9 at the start of the year.
Consider all the value you get at that price, though. Microsoft has exposure to multiple high-growth tech niches, including cloud services, digital entertainment, and cybersecurity. Artificial intelligence (AI) promises to touch all these areas, and potentially add tons of value to Microsoft's portfolio of services over the next few years.
The software giant generated $24 billion of operating income this past quarter, up 21% year over year. It is sitting on over $100 billion of cash right now as well after having produced $87 billion of operating cash in the past full year. Numbers like that are extremely hard to find elsewhere on the stock market, and that's why investors should consider owning this stock even if it means paying a bit of a premium.
