Tax season is rapidly coming to an end, and there's just over two weeks left before time runs out on the window to contribute to an IRA for the 2014 year. Until April 15, you can make a traditional or Roth IRA contribution and backdate it to last year, taking advantage of either an upfront tax deduction for traditional IRAs or tax-free growth for Roths.
Once you open an IRA, you need to know how to invest the money you contribute. To come up with some good ideas for your consideration, we asked three Motley Fool contributors to talk about stocks they think are promising right now. Look at their picks and see what you think about the companies and their future prospects.
Dan Caplinger: If you're opening or adding to an IRA because you're in the middle of preparing your taxes, then there's no more appropriate stock to consider than tax-preparation specialist H&R Block (NYSE:HRB). The company is one of the most obvious examples of a seasonal business out there, with most of its revenue coming in the window between January and April. Surprisingly, some investors still fail to take this seasonality into account, often making the period immediately before the company reports its high-season earnings a lucrative time to invest in H&R Block stock.
H&R Block has a number of things going for it this year, including added tax-return complexity due to the new Obamacare tax subsidies and increased demand for its refund-anticipation products. One concern among investors is that free-filing services have become more prevalent in the industry, sapping some customers from its paid service. But with the company's promotional discounts offering 50% off the price of competing preparation services in previous years, H&R Block hopes that it will attract a new set of customers to its ranks -- and be able to retain them this time next year. With a 2.5% dividend yield and opportunities to grow, H&R Block makes a reasonable choice for a retirement account.
Jason Hall: I'm a big fan of companies with great long-term capital appreciation potential, lower risk of losses, and a business model that is less at risk of being disrupted by competitors.
Markel (NYSE:MKL) fits all these very well. Not many people know about Markel, whose core business is insurance, and largely specialty insurance where there is less competition than traditional property and casualty. Many insurers actually lose money or barely break even on their insurance business, making money instead on their investments of the "float", or premiums collected and held for payment of claims. Markel, however -- much like peer Berkshire Hathaway (NYSE: BRK-B) -- actually turns a profit on its underwriting most years, with a combined ratio of 97% and 95% in the past two years.
But that's just the beginning of the story for Markel. Its efforts at investing the float and the underwriting profits are combining to build something big. Over the past decade, the company has grown its collection of subsidiaries -- held under the Markel Ventures banner -- from about $80 million in sales to more than $830 million in 2014, plus a meaningful $95 million in adjusted EBITDA.
Markel's management team -- maybe the best in the business -- is building a phenomenal cash-cow business. With a market cap of around $10.6 billion, and trading at a price to book ratio of 1.4, which is well below its pre-recession historical average, this would be one of my first choices for my IRA before tax day.
Selena Maranjian: One compelling company to consider for your IRA portfolio is Qualcomm (NASDAQ:QCOM). It's not quite a household name, but its technology is inside most smartphones. It's a chip giant, with a market value near $112 billion and a dividend, recently hiked by 14%, that will yield 2.8% at its recent stock price.
The stock, which has averaged annual gains of 12% over the past 5 years, is down 10% over the past year, in part due to increasing competition in China, its high-end Snapdragon 810 chip not being included in a major new smartphone, and antitrust concerns that were recently settled in China for $975 million. That has some folks turning away from the company, but it's important to remember that Qualcomm still has a lot going right for it.
It's still the global market share leader for baseband processors, and with gobs of valuable patents, it gets much of its revenue from licensing. Qualcomm's net profit margin (nearly 30%) reflects its reputation and market dominance, and its revenue and earnings have grown by double digits over the past decade. It's poised to profit from the spread of smartphones in China (and from their upgrades), where it's already generating about half its revenue. It's plowing money into R&D, too, recently announcing its Snapdragon Sense ID, a touch-ID technology reportedly stronger than that of Apple (NASDAQ: AAPL).
Qualcomm is a phenomenal cash machine, kicking out $7 billion in free cash flow annually. That makes double-digit dividend increases possible, and helped it to announce a massive $15 billion share repurchase program. Its recent P/E ratio was near 15, and its forward-looking one near 13, both well below its five-year average of 21. The stock is appealingly priced and is likely to reward long-term investors.
Dan Caplinger owns shares of Apple and Berkshire Hathaway. Jason Hall owns shares of Apple and Berkshire Hathaway. Selena Maranjian owns shares of Apple, Berkshire Hathaway, Markel, and Qualcomm. The Motley Fool recommends Apple, Berkshire Hathaway, and Markel. The Motley Fool owns shares of Apple, Berkshire Hathaway, Markel, and Qualcomm. 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.