Neal Goodwin, Guest Editor
We will take a look at six of the safest companies in the world. These stocks are not going anywhere in the near future as there is minimal risk of any of these following companies announcing bankruptcy in the near future. They all share the quality that they are stable and usually immune to large drops or increases in stock prices, which can be both a good and a bad thing. Also, given the large names we are dealing with, the beauty of owning these stocks is you can give yourself a high-five every time you purchase one of their products, which you probably do every day.
Altria Group (NYSE:MO): In the tobacco industry, MO engages in the manufacture and sale of cigarettes as well as smokeless tobacco and wine. It owns the company brand portfolios that consist of successful and well-known brand names like Marlboro (the largest cigarette company in the U.S.), Copenhagen, Skoal and Black & Mild. Despite government attempts to advocate against smoking cigarettes, MO still had revenue of over $24 billion last year. After years of lawsuits, taxation and general disdain, this "sin" stock has consistently been able to make considerable gains.
MO appears to be bullet proof in that, even with all the money in the world being thrown at negative advertising for cigarettes, a good chunk of that money will end up back in the pockets of the tobacco companies. They say that any publicity is good publicity, and considering the only publicity tobacco gets is about how terrible it is for you, companies like MO must love seeing anti-smoking advertisements. Since it cannot advertise for its product, what better way to continuously get its name on the market than with negative advertising? Seems ironic, right? In addition, MO sales are closely correlated to consumer demand for alcohol, a fearful combination of forces that is sure to leave you feeling woozy on a Sunday morning.
As a stock, MO has solid prospects going forward. While its 52-week high was on May 19 at 28.03, its P/E is only 14.73 and forward P/E is 12.72. Its 52-week change of 32.03% is impressive compared to the S&P 500. With a decent PEG ratio of 1.72, a wildly impressive ROE of 79.3, and ROI of 23.3%, this stock may even be undervalued and overlooked by the market. I like this stock as a buy, as it should be able to continue its steady upward trend to higher per share value. On top of that, I have not even mentioned the most attractive aspect of this stock: Dividend and yield come out to an impressive $1.52 and 5.50%, respectively. Although the payout ratio is a little high at 79% a company with as much cash flow as MO should have no problem sustaining high dividends. For a stock selling at 27.74, I like what I see. Some people may worry that less people are purchasing tobacco products, however companies like MO continue to more than make up for the loss in consumption by increasing prices.
Coca-Cola Company (NYSE:KO): A little known company, KO is the world's No. 1 soft drink company, owning four of the world's top five soft drink brands (Coca-Cola, Diet Coke, Fanta and Sprite). With close to three-fourths of the company's revenue generated outside of the U.S., Coke can be found on nearly every street corner around the world. KO owns arguably the world's most valuable brand, making me wonder what the current Chairman and CEO Muhtar Kent actually does with his day considering his products literally sell themselves. My guess would be figuring out how to best utilize his surreal salary over 18-holes of golf and drinks consisting of his own brand in the clubhouse afterward. KO is in a capital intensive industry, averaging about $760,000 in revenue per employee, meaning the company might as well run itself, from top to bottom. How do I apply for a job within KO?
This is not a stock that will grow rapidly as Coke is present in almost every society around the globe. However it has provided consistent growth over the past 10 years and makes up for lack of growth opportunity by rewarding a healthy dividend and yield of $1.88 and 2.80%, respectively. With a payout ratio of 53% and earnings per share of 5.19, we should eventually see an increase in dividends. While not an ideal candidate for large potential increases due to size and lack of company growth regions, KO has an impressive P/E of 13.16 which suggests the stock may indeed increase over the next few months. KO is one of the favorite stocks of investors such as Warren Buffett. Selling at 68.30, I like this stock to rise somewhere in the range of 10% by the end of the year. Over the past three years Coke has successfully grown revenues almost double the industry average. I give it a buy rating, and anyone who invests should reap increased stock value as well as strong dividends. And speaking of soda ...
PepsiCo, Inc. (NYSE:PEP): In addition to being the consensus little brother to Coca-Cola Company, PEP also dabbles in foods and snacks such as Quaker Oats and Frito Lay. On the same level as Coca-Cola, PepsiCo is essentially a self-sustaining company based on the power of its collection of strong brand names. I do not like the prospects of PEP as much as I do KO, but you cannot go wrong with either stock, as they thoroughly dominate a highly lucrative industry. Pepsi has been doing better as a stock as of late, increasing 12% in the last three months. Surprisingly, while PEP plays little brother to KO in soda, PEP makes up for that in its other production, and has greater revenues than KO ($60B to $38B). Unfortunately, its current P/E (19.07) and PEG ratio (2.06) do not support future increases as much as KO. Priced currently at 71.30, PEP is yielding at 2.90% with dividends of 2.06.
Similar to KO, PEP should be a very stable and productive company going forward. I expect PEP to continue its upward momentum of stock value, and the company should have no problem continuing payment of appropriate dividends, being a safe and potentially lucrative outlet for investors looking to stabilize a portfolio. I give PEP a buy rating, although with less authority than KO.
McDonald's Corp (NYSE:MCD): CEO Ronald McDonald ... err ... Jim Skinner has driven McDonald's corporation to one of the steadiest increases in the entire stock market. In addition to steady, almost boring increases in stock price, MCD pays a healthy dividend of $2.44, yielding at 3.00%. MCD thrives under any environment. When the economy is doing well, people love McDonald's because it is family friendly, a cheap meal, fast, and they can send their children to play in the ball pit for hours at a time and get peace and quiet. When the economy is in the tank, people need cheap meals and breaks from their kids to think about how they are going to make ends meet, so they go to McDonald's, hit up the dollar menu, and send their kids into the ball pit. A large percentage of people then end up applying for a job at McDonald's during that time.
McDonald's is truly a self sustaining machine. Having already implemented a system which automatically orders a restaurant a new burger when it is taken out of the drawer, McDonald's recently announced that it has created an automated order process at a number of European locations. Total automation at McDonald's restaurants would mean two things: Benefit to MCD shareholders as costs are cut even further, and a loss of hundreds of thousands of jobs around the world. Even though people may lose their jobs at MCD, this only gives them more reason to come back and eat at the restaurant. MCD stock appears as if it will continue its linear climb in increasing share value from now until eternity, whether it was last weekend (hello, rapture!) or thousands of years from now. Either way, I would be shocked if Ronald McDonald doesn’t survive to see the end of it. I give MCD a hold rating, as it is coming off of a very good month that has seen stock prices increase almost 15%, suggesting a relapse may be in store. However, this is a promising stock for the long term as they support a promising P/E that suggests continued consistent growth, and a PEG rating of 1.57. I would keep an eye on this stock if you are interested in long term security.
Waste Management (NYSE:WM): WM is in the business of waste management. WM along with another waste management company I covered recently, Republic Services (NYSE:RSG), are both members of the "big 3" in United States waste management industry, controlling more than 60% of industry revenues. I covered RSG as a prime candidate for increased dividends. I gave RSG a buy rating. While not as good of a candidate to increase dividends, WM actually provides a large yield, doing so at 3.5% compared to RSGs 2.5%. As a result, it has a larger payout ratio, one that may actually be a little high at 64%. Overall, if looking to invest in the waste management sector, I like WM as a safer stock than RSG. On the contrary, I like the potential of RSG more for increased returns. WM and RSG are leaders in a business that essentially runs itself. However, so I have little fear of either of these companies going anywhere in the near future. This industry has enormous barriers to entry: A company would need an exceptional amount of capital and time (3-7 years to obtain necessary permits) if they wanted to make a serious run at succeeding in this industry, suggesting success for both of them for the long run. Like RSG, I give WM a buy rating on the basis of continued consistent, predictable output, in addition to being surrounded by good peripherals. Its P/E is 19.16, and while a PEG of 1.61 is a little high, a company of this size should have nothing to worry about. Earlier in the year there were concerns about a lack of cash flow coming into WM, but it rectified those concerns with a solid Q1.
Hershey Co. (NYSE:HSY): Ironically, Hershey's CEO of the past three years, David West, left the company last Friday to take the top job at Del Monte Foods (NYSEMKT:DMF) in California. If you are not aware, Hershey is the largest producer of quality chocolate in North America and a global leader in chocolate and sugar manufacturing. Its factory in Hershey, PA, is over 2,000,000 square feet, and is the largest chocolate factory in the world. As a stock, I am not a huge fan of HSY. It recently raised wholesale prices by 9.7% on most of its candy products, reflecting increased costs for raw materials, fuel, utilities and transportation. In a competitive industry, this may end up hurting HSY. However its brand name could make up for the difference. HSY has a reasonable P/E of 24.19, but a high PEG ratio of 2.4 is worrisome. Combined with a marginal EPS of 2.27 and this is not one of my top choices for buys. On the bright side, HSY does provide a nice dividend yield of 2.5% while trading at $54.85. For dividend lovers, HSY is a stock to consider given its giant market cap of $12.37 billion. For others, I will give a hold rating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.