When investing for your kids' college education, it's important to choose stocks that have the right combination of growth potential and safety. Tuition gets more and more expensive each year so it's important to grow your savings in order to keep up, but you don't want stocks that are so volatile that you can't sleep at night. With that in mind, here are three of our experts' favorite college fund stocks.
Matt Frankel: One great stock for your kid's college fund is Walt Disney (NYSE:DIS), which is "on sale" right now after missing revenue estimates for the second quarter. I like Disney as a college fund investment for a few reasons.
First of all, Disney is a diversified media conglomerate, with its theme park operations, film studios, TV networks, and consumer products. Its portfolio of world-class brand names and franchises gives it a tremendous competitive advantage. These include:
- Disney itself
- ABC networks
- Lucasfilm (Star Wars)
- Marvel (and all of its characters)
Disney is committed to expanding its global presence in the coming years, starting with a new theme park that's under construction in China. And the company has opportunities to capitalize on new technologies to expand the reach (and monetization) of its media content through channels such as Netflix, Amazon, and more -- and the early results look promising.
Another reason I like Disney as a college fund stock is because it's a great stock to use to teach your kids about investing. After all, what publicly traded company is more recognizable to a child than Disney?
Not only is Disney a diversified investment that's fun and interesting to own, it has delivered excellent performance as well. Over the past decade, Disney has produced an average total return of 16.9% per year for its investors. In the 18 or so years between birth and college age, Disney could certainly help take a bite out of your kids' tuition.
Selena Maranjian: If you're saving money for your child's future college expenses, you'll want to choose your stocks carefully. If Junior is currently 2 years old, then he probably has 16 more years before he will head off to college, so you can afford to take on some risk and weigh the portfolio heavily towards stocks, which outperform bonds over long periods. If he's 15, then you only have three years, and you might want to keep the money in CDs or some other stable place.
A good stock for a college-savings portfolio, not to mention most other portfolios, is Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), helmed by none other than super-investor Warren Buffett. One reason it's well suited for a relatively short-term portfolio (as opposed to your retirement fund, which you might be growing for another 25 years) is that it's not very volatile.
Its beta, for example, is a mere 0.29, meaning that when the overall market jumps by, say, 10%, it's likely to gain just 2.9% -- and when the market drops by 10%, it's likely to lose a lot less, too. Smaller gains might seem undesirable, but don't think that Berkshire isn't a performer. Over the past 10 years, its stock has averaged returns of 10% annually, and it has averaged 15% over the past 25 years.
One reason for Berkshire's stability is its hugely diversified operations, ranging from its mainstay insurance operations to railroads, energy, home building, jewelry, furniture, paint, private jets, candy, recreational vehicles, ice cream, chemicals, newspapers, underwear, tools, foodservice equipment, and car dealerships, among others. Buffett just spent more than $30 billion buying all of Precision Castparts, too, a premier maker of components for the aerospace and energy industries. Reading Buffett's annual letters to shareholders while his company helps you grow your college savings account can provide an education in itself.
Celgene is one of the biotech industry's biggest and most successful companies, and while it doesn't offer a dividend, it does boast billions of dollars in sales and profits, which are expected to keep growing. In July, Celgene upped its long-term forecast to $21 billion in sales and at least $13 per share in earnings in 2020. If Celgene delivers on that goal, it will mark a more than doubling in revenue and earnings from this year's expected $9 billion and $4.75, respectively.
Fueling Celgene's growth will be an expected increase in demand for its multiple myeloma drugs Revlimid and Pomalyst, growing sales for its cancer drug Abraxane, and significantly higher revenue from its psoriasis drug Otezla. Additionally, new therapies for Crohn's disease and multiple sclerosis could also contribute, as could other drugs that are being developed both internally and externally by a slate of emerging biotech companies that Celgene is partnered up with.
With a long term forecast for growth and a proven track record of success, Celgene could be the perfect stock for investors interested in adding a bit more risk into their college savings portfolios.
Matthew Frankel owns shares of Berkshire Hathaway. Selena Maranjian owns shares of Amazon.com, Berkshire Hathaway, Celgene, Netflix, and Walt Disney. Todd Campbell owns shares of Amazon.com and Celgene. The Motley Fool recommends Amazon.com, Berkshire Hathaway, Celgene, Netflix, Precision Castparts, and Walt Disney. The Motley Fool owns shares of Amazon.com, Berkshire Hathaway, Celgene, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.