How To Make Money From U.S. Demographic Changes

Includes: DG, JNJ, KO, MDLZ, TJX, UNH, WMT
by: Brian Gorban

It's no secret that the United States economy has been in real turmoil for a number of years now. Unemployment continues to stay at an abnormally high 9%, the jobless U-6 rate is at a worrisome 16%, and real income continues to fall as inflation keeps on rising while pay stays stagnant. So, one has to wonder where he/she should can put his money in these harsh economic times. These well-run companies in a variety of different industries including retail, healthcare, food, and beverage below that have weathered many of these economic cycles, pay a good dividend, and focus simply on providing the best possible price to their customers are a great place to invest. Moreover, during the last downturn of 2008, while the economy as a whole was contracting, all of these companies continued to grow, albeit at slower than their long-run average of mid single digits to low teens, and in this current turmoil in 2011, these companies are continuing to outperform the general market.

Wal-Mart Stores (NYSE:WMT) operates retail stores in various formats worldwide and is the largest retailer in the world with over $430B in annual sales. This company focuses on providing the lowest costs to its customers and in these tough economic times, people of all income levels benefit. This stock which I mentioned favorably here, still is showing great value at a 12x trailing P/E, 11x forward P/E, .5x P/S and EV/S, a massive $11B in FCF this past year, and very nice 2.5% secure dividend. I think this is a great buy at this level.

Johnson & Johnson (NYSE:JNJ) engages in the research and development, manufacture, and sale of various products in the healthcare field worldwide. The company had revenue approaching $65B this past year and currently is trading at 15x P/E, 8.4x EV/EBITDA, very nice return on assets and equity in excess of 9% and 19% respectively, a 3.6% dividend yield, and as of last quarter 64.2% of shares held by institutions. With a payout ratio near 50% and FCF of approximately $14B, it’s safe to assume that JNJ will raise its already sizable dividend higher in the coming quarters.

United Health Group (NYSE:UNH) is the largest HMO in the world, near $100B in annual revenue. The stock looks favorably priced at a 10x P/E, .5x EV/S, 1.4% dividend yield, and as of last quarter 86.5% of shares held by institutions. Moreover, the payout ratio is extremely low at 13%, so expect continued dividend hikes. This is a good buy at these levels.

Coca-Cola (NYSE:KO) is widely known for having among the most valuable brand names globally. The stock looks compelling, trading at 12.5x price/earnings, well over $7B in FCF this past year, and a respectable 2.8% dividend yield. Moreover, its payout is under 35%, indicating a safe assumption that the dividend will continue to be raised.

This continues to be a very large holding of Berkshire Hathaway (NYSE:BRK.A). It currently looks cheap and I think it's a great safe-haven with a respectable yield that the long-term dividend holder can keep in their portfolio. It's a nice buy here. As of Sept. 30, a respectable 56% of the shares were owned by institutions.

Kraft Foods (KFT), together with its subsidiaries, manufactures and markets packaged food products worldwide. This is a very well-run company that is reasonably priced at 19x price/earnings, 1.2x price/sales, and has a very nice 3.3% dividend yield, with a safe payout under 70%. This happens to be another large holding of BRK.A, with it owning 5.6% of the shares outstanding as of June 30. I think this is a safe long-term buy at these levels. As of Sept. 30, a strong 74% of shares were owned by institutions.

The TJX Companies (NYSE:TJX) operates as an off-price apparel and home fashions retailer. TJX offers great value to customers by selling goods at far below retail price and sporting healthy margins in the process. Moreover, the company is trading at a reasonable 17x trailing P/E, 13x forward P/E, 1x P/S and EV/S, well over $1B in FCF this past year, and decent 1.3% dividend yield. TJX is a great holding in these tough economic times.

Dollar General Corporation (NYSE:DG) operates as a discount retailer of general merchandise in the southern, southwestern, Midwestern, and eastern United States. This mega-discounter has seen impressive sales growth lately as the public has been adamant about only buying bargains and DG delivers. The stock trades at a reasonable 20x trailing P/E, 14x forward P/E, 1x PEG and P/S, and 1.1x EV/S. This company is the exception of this list as it doesn't pay a dividend, which has me a little hesitant, but I see how they have such a sound management team effectively re-investing those earnings into new stores, so in this case I'll gladly make the exception and have DG as a buy.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WMT, TJX, DG, JNJ, KO over the next 72 hours.