Get some security from a wild stock market.
In recent days, the S&P 500 index dipped into bear market territory, but also had great runs and some of the best single-day surges in its history. In an unpredictable and volatile stock market that has even analysts puzzled, long-term investors looking for dependability and reliability have limited options. Morningstar has a list of picks it calls its Cash Cow stock list, companies with positive free cash flow growth over the past five years and cash balances of at least 5 percent of total assets. Here are eight cash cow stocks to buy to prepare for an unpredictable 2019.
Adobe (ticker: ADBE)
Morningstar analyst Ali Mogharabi says Adobe has a wide competitive moat and reported an impressive fiscal fourth quarter in December, beating his expectations. Mogharabi says he is particularly impressed by the company’s organic revenue growth and its healthy consumer and enterprise demand. He says Adobe is the gold standard in creative software and has successfully transitioned from an on-premise business to a software-as-a-service cloud leader. Even after pricey acquisitions of Magento and Marketo, Mogharabi says Adobe still has plenty of cash on hand. Morningstar has a “buy” rating and $300 fair value estimate for ADBE stock.
Comcast Corp. (CMCSA)
Analyst Michael Hodel says Comcast overpaid for its recently acquired Sky assets, but he says it remains one of the top telecom companies in the market. High-quality internet service has become a staple utility in American households, and Hodel says Comcast’s growing market share has added to its robust cash flow. Hodel says NBC Universal is a valuable asset, and Comcast has built a relatively wide competitive moat to preserve its competitive advantage while it commits more than $40 billion to the Sky deal. Morningstar has a “buy” rating and $42 fair value estimate for CMCSA stock.
Salesforce.com (CRM)
Analyst Andrew Lange says Salesforce.com is a trailblazer in software-as-a-service cloud, and the company’s earnings beat and guidance hike in the most recent quarter is a sign management is executing its strategy. Lange says Salesforce has high exposure to secular growth opportunities in rapid deployment of enterprise cloud applications and instant customer updates. In addition, cost of ownership for Salesforce software applications is declining, while the company’s cash flow is increasing. Lange says Salesforce’s total addressable market has grown to $100 billion. Morningstar has a “buy” rating and $180 fair value estimate for CRM stock.
Honeywell International (HON)
Analyst Joshua Aguilar says Honeywell is a top diversified stock to own because of its culture, its process and its portfolio. Aguilar says Honeywell’s entrepreneurialism is the hallmark of its culture, and its operating system, which is modeled off Toyota Motor Corp. (TM), should help the company increase its margins over the next five years. Finally, he says Honeywell has improved its portfolio via its recent acquisition of Intelligrated. HON stock currently trades at a price-to-free-cash-flow ratio of 14.1, below its five-year average of 16.7. Morningstar has a “buy” rating and $150 fair value estimate for HON stock.
Altria Group (MO)
Analyst Philip Gorham says tobacco giant Altria made the right strategic move by acquiring vaping market leader Juul, but the steep $12.8 billion price tag was far too high. Regardless, Gorham says MO is relatively well-positioned given the secular market decline in cigarette sales. He says Altria is offsetting the 4 percent annual decline in U.S. cigarette volumes via pricing leverage, and MO stock is currently trading at a P/FCF ratio of only 13.6. Morningstar has a “buy” rating and $62 fair value estimate for MO stock.
Philip Morris International (PM)
Gorham says the strong third quarter from Philip Morris is a sign of how strong the company’s combustables business is. He says PM stock is trading at a significant discount to its intrinsic value given its impressive cash flow. Philip Morris’ 0.8 percent margin growth in the most recent quarter is also a reassuring sign that pricing leverage and cost cutting are paying off for long-term investors. In addition, PM stock pays an exceptional 6.8 percent dividend yield. Morningstar has a “buy” rating and $102 fair value estimate for PM stock.
State Street Corp. (STT)
This year has been a disaster for U.S. bank stocks considering the high expectations for rising interest rates, tax cuts and deregulation. Analyst Eric Compton says State Street has struggled with revenue growth due to clients’ increasing focus on fees. The bank’s institutional investor business has been particularly sluggish given the company’s historically premium rates in an increasingly competitive pricing environment. Despite the headwinds, STT stock trades at a P/FCF multiple of just 5.2, about an 85 percent discount to its five-year average. Morningstar has a “buy” rating and $90 fair value estimate for STT stock.
Texas Instruments, Incorporated (TXN)
Analyst Brian Colello says the market for Texas Instruments is softening in the near term, but selling pressure in TXN stock is providing a buying opportunity for long-term investors. Colello says Texas Instruments’ focus on high-margin analog and embedded chips shows the company has impressive strategic vision that should result in additional gross margin expansion in coming years. Colello says Texas Instruments is well-positioned to benefit from the rise of the Internet of Things trend, which should create major sustainable demand for TI chips. Morningstar has a “buy” rating and $106 fair value estimate for TXN stock.
These are dependable cash cow stocks.
Here are eight dependable cash cow stocks for investors to buy in a volatile market.
— Adobe (ADBE)
— Comcast Corp. (CMCSA)
— Salesforce.com (CRM)
— Honeywell International (HON)
— Altria Group (MO)
— Philip Morris International (PM)
— State Street Corp. (STT)
— Texas Instruments, Incorporated (TXN)
