I've got some good news and some bad news for you. The good: As life expectancy continues to climb, you're likely to have a lot of years to enjoy in retirement.

The bad: As life expectancy continues to climb, you're likely to have a lot of years to fund in retirement.

That's why stocks -- which historically return more than any other asset class -- are such a valuable part of any portfolio, even for those nearing (or already enjoying) retirement.

Stocks will help
Robert Brokamp of the Motley Fool Rule Your Retirement service suggests that even those with a conservative risk profile should invest at least 30% of their total portfolio in stocks. In a recent issue of the newsletter, guest columnist Philip Durell (of Motley Fool Inside Value fame) explained how he goes about finding stocks suitable for a retirement portfolio.

It all starts with the price-to-sales ratio, which the legendary Warren Buffett uses to value the market as a whole. Similar to the price-to-earnings ratio (P/E), the P/S is simply the stock price compared to the full-year sales of a company.

A P/S ratio lower than 1.0 often indicates an opportunity for value investors, but of course, there are no simple formulas for investing success. What if management is massaging the sales figures, for example? So, Philip also likes to look at receivables, which are sales the company has recorded but for which it has not yet received payment. "If [receivables] are increasing a lot faster than sales," he says, "it is likely that some revenues are not being collected."

Another of his warning signs is declining cash flows from operations, even if net earnings rise.

Stable stocks
I summarized Philip's points so that I could build a stock screen that would hopefully produce a list of retirement-worthy stocks. Simplified, I looked for large companies with:

  1. A low enterprise value-to-sales ratio relative to the overall market (I used enterprise value instead of market price so as to give debt-free firms a fair shake).
  2. Accounts receivables that are not outpacing sales growth.
  3. Cash from operations that are steady or growing.

Here are some of the companies passing the screen.


EV/Sales Ratio

Cash From Operations Growth (TTM)

General Dynamics (NYSE:GD)



Best Buy (NYSE:BBY)



Safeway (NYSE:SWY)



J.C. Penney (NYSE:JCP)



China Petroleum (NYSE:SNP)



Johnson Controls (NYSE:JCI)



Aetna (NYSE:AET)



Data from Capital IQ, a division of Standard & Poor's.

If you're looking for stable stocks that have solid potential and are unlikely to lose a significant amount of their value, this list is a good place to start your research.

Fund your golden years
Of course, there's much more to consider when planning for your retirement. And whether that's decades or just days away, Robert's Rule Your Retirement service and newsletter has it all: specific stock and mutual fund recommendations, model portfolios for optimal asset allocation, and much more.

If you're feeling the need to get off on the right foot, the service is free for the next 30 days. Here's more information.

This article was originally published May 15, 2007. It has been updated.

Rex Moore knows the pain of back bustin' like the farmer knows the pain of his pickup truck rustin'. He owns no companies mentioned in this article. Best Buy is a Stock Advisor pick. The Fool's disclosure policy is livin' its life like a song.