If you are looking at the stock market today and believe that it is about to break out into a new bull market (the criteria calls for a 20% advance from a bear low as well as hitting a new all-time high), then you might want to tilt your portfolio toward growth.
There are a lot of ways to do that, but here are three stocks that you should strongly consider: NextEra Energy (NEE -1.36%), Rockwell Automation (ROK 1.15%), and Fastenal (FAST 0.04%). Here's why.
1. NextEra is more than a simple utility
Buying NextEra Energy is really like buying two companies in one. The foundation for the business is the company's regulated utility operation (about 70% of the company). It is fairly boring, selling power largely in the state of Florida via Florida Power & Light. Being regulated, it has a monopoly in the areas it serves, but it has to get the rates it charges and its spending plans approved by the government. Slow and steady is the general path.
On top of that business, NextEra is building a clean energy operation (about 30% of the company). It is already one of the largest providers of solar and wind power on the planet. This business has roughly 34 gigawatts of power today and management believes it will roughly double that by 2026.
The long-term success of this approach shows up in the utility's dividend. Although the yield isn't huge at roughly 3.25%, the annual payment has been increased every year for 29 years. The annualized rate of increase over the past decade was about 10%, which is significant for a utility. If you are expecting a bright future, this foundational stock is one you'll want to watch closely.
2. Rockwell helps companies get more efficient
Rockwell Automation's name is fairly descriptive of what it does -- helping companies incorporate automation technology into their operations. This is valuable in both good markets and bad ones and during periods of economic growth and contraction. The company has a long history of success behind it, highlighted by a streak of 14 consecutive annual dividend increases, with the dividend growing at roughly 9% per year over the past decade. The yield is roughly 1.8%.
But the real story here today is that Rockwell Automation appears attractively priced. The industrial company's price-to-earnings, price-to-sales, and price-to-book value ratios are all below their five-year averages. Recessions can be hard, as companies pull back on capital spending. But when the spigots open back up, Rockwell Automation should be a huge beneficiary as companies look to reign in costs by using technology. Investors are likely to reward the stock when that happens.
3. Fastenal is integral to its customers
The last name to consider is Fastenal, which sells fasteners and tools to industrial companies. It has been a very good business over time, with 24 years of annual dividend increases behind it. The average annual increase over the past decade was around 13.5%. The yield today is around 2.3%.
There's two factors to like here. First, the yield is toward the high end of the stock's historical yield range. While it wouldn't be appropriate to say the stock is cheap, it does seem fairly valued. The second thing to appreciate is that Fastenal has been working to integrate itself into its customers' supply chains. That includes things like installing tool and part vending machines inside of a company's factory to, effectively, take over a company's parts supply chain system. It is hard to extract Fastenal once it is inside a company like that.
What's impressive here, though, is that Fastenal doesn't take its importance for granted. For example, it increased its own inventory levels during the supply chain upheaval caused by the coronavirus pandemic. That depressed Fastenal's results, but ensured its customers could count on it. That's the type of company you want to own in good markets and bad ones.
Three different types of stocks
NextEra Energy is a utility with a growth focus that can provide a foundation for your portfolio. Rockwell Automation is currently out of favor with investors, but when Wall Street gets bullish again the company's focus on helping customers get more efficient will likely draw increasing attention. And Fastenal is increasingly integrated into its customers' businesses in a way that makes it difficult to replace -- it does well when they do well. If you are expecting a bull market, you should probably take a look at all three today.
