After a historically painful start to the year, retirees around the world breathed a collective sigh of relief as they watched their nest eggs rebound nicely from the volatility in mid-February. While it might be tempting to step out of the market while the getting's good, astute investors know there are always bargains to be found. And this holds true whether you're a 20-something investor just starting your career, or a retiree looking to make your money work as hard as possible for you in your golden years.
Let's focus on the latter for now. We asked three Motley Fool contributors to offer a stock they think deserves a place in senior citizens' portfolios. Read on to see which businesses they chose and why:
Steve Symington: Visa (V 0.49%) is capitalizing on our increasingly cash-less society. But the global payments technology company ironically generates plenty of cash and returns it to shareholders through its quarterly dividend (yielding a modest 0.75% at today's prices) and stock repurchases each quarter. That makes it an attractive bet for older investors as they search for relatively stable places to put their money to work in equities.
Visa anticipates generating free cash flow of roughly $7 billion this year. And through March 31, 2016, the company spent roughly $3.8 billion to repurchase a total of 49.9 million shares of class A common stock, good for an average price of $75.47 per share. That left around $4 billion remaining under its current repurchase authorization.
To be fair -- and putting aside the massive vote of confidence those ambitious repurchases represent -- Visa doesn't exactly look like a "value stock" based on traditional metrics; shares currently trade at a somewhat-steep 26.8 times trailing 12-month earnings, and 24 times next year's estimates. And the stock has largely traded flat so far this year given persistent macroeconomic headwinds holding back growth.
But I'm also convinced that's a fair premium to pay given Visa's incredible reach, brand power, and central position benefiting from the seemingly inevitable conversion to digital payments as 85% of the world's transactions are still completed in cash. When these headwinds begin to abate, I think investors who join Visa in buying its stock now will enjoy market-beating returns in the coming years.
Todd Campbell: Pfizer, Inc. (PFE -0.21%) is one of my favorite stock picks for value minded retirees. After years of struggling to overcome slipping sales tied to patent expiration on its once top-selling cholesterol drug Lipitor, management has finally positioned the company to return to top and bottom line growth.
In Q1, Pfizer succeeded in delivering its sixth consecutive quarter of stand-alone growth and thanks to strong sales for its cancer drug Ibrance and anticoagulant Eliquis, Pfizer's C-suite increased its full year sales outlook by $2 billion to at least $51 billion in 2016. The company's cost-shaving moves are also kicking in, and that has management projecting EPS of $2.38 this year. Based on estimates, Pfizer's shares are trading at 14.2 times expected earnings this year, and just 13.1 times next year's forecast.
Personally, I don't think that's a lot to pay, especially given the chance for future growth. After acquiring Hospira last year, Pfizer is positioned to be a leading maker of biosimilars, a generic version of drugs that work similarly, but aren't identical copies of complex biologic medicines. Pfizer has already won approval for a biosimilar to the multibillion per year Remicade, and with a slate of other biosimilars in development, the company should be able to win a fair share of what it believes could be a market valued at $20 billion annually by 2020.
Daniel Miller: There's been an industrial company on my radar for quite some time, despite a market cap of almost $1.5 billion, it's relatively unheard of. The company is named Carpenter Technology Corp. (CRS 2.31%) and its business is broken down into two segments: specialty alloys operations and performance engineered products.
Looking at the first of those two, Carpenter provides customers with stainless steels, high temperature (nickel, iron and cobalt-base) super alloys, high-strength steels, among many others. The second segment has multiple businesses which sell into aerospace and defense, energy, transportation, medical and industrial consumer product markets -- it generates about half of its sales to the aerospace and defense market, which is why I find the company compelling.
Carpenter is well positioned to benefit from an increase in global air traffic over the coming years and the company's products are complex and designed to withstand extreme environments which make its production methods difficult to replicate. Thanks to its growing aerospace business, Carpenter is building a state-of-the-art manufacturing facility in Alabama which is expected to drive margin expansion.
The company has products and processes that are difficult to replicate and should enjoy growth driven by an industry expected to boom over the next decade. It boasts a dividend yield of 2.3% and trades at a forward price-to-earnings of 12.9, a price to book of 1.2 and price to cash flow of 5.6, according to Morningstar. The company appears to be well established, trading at a discount and well positioned for growth -- factors that make its stock enticing for retirees.
