Motorola Solutions, Inc. (MSI) is familiar, heavily researched stock. Should contrarian investors focus their research on a small number of stocks like MSI from beaten industries?
No. On the contrary, investment returns are ultimately driven by financial performance, not popularity. Regardless of interest in MSI, its earnings and future cash flows will determine its value. Its financial strength will determine its ability to weather economic downturns. Forget about popularity and focus on the following:
Financial Strength. Is the stock illiquid or insolvent? Has it and can it survive hard times?
Value. Is the stock attractively priced or is it expensive relative to what it is worth?
Growth. Is the firm likely to experience growing earnings or shrinking earnings in the next few years?
As a portfolio with better prospects than MSI, consider the following alternative stocks with strong track records and solid credit scores:
Ticker | Company | Industry | 10-Year Average ROE | Altman Z-score |
| ADI | Analog Devices Inc. | Semiconductor - Integrated Circuits | 16.3% | 7.84 |
| ADTN | ADTRAN Inc. | Communication Equipment | 15.3% | 13.09 |
| ALTR | Altera Corp. | Semiconductor - Specialized | 21.7% | 8.03 |
| APH | Amphenol Corporation | Diversified Electronics | 42.2% | 5.21 |
| CSCO | Cisco Systems, Inc. | Networking & Communication Devices | 18.2% | 3.11 |
| EBIX | Ebix Inc. | Business Software & Services | 28.6% | 8.63 |
| IBM | International Business Machines | Diversified Computer Systems | 38.9% | 4.49 |
| MSFT | Microsoft Corporation | Application Software | 30.6% | 5.15 |
| ORCL | Oracle Corporation | Application Software | 29.0% | 4.84 |
| PLT | Plantronics, Inc. | Processing Systems & Products | 16.1% | 11.92 |
| QLGC | QLogic Corp. | Semiconductor - Integrated Circuits | 16.5% | 11.21 |
MSI | Motorola Solutions, Inc. | Communication Equipment | -2.2% | 3.10 |
These alternative stocks are all categorized as "safe" according to the Altman Z-score,* indicating that they are not considered bankruptcy risks. Moreover, the average 10-year return on equity demonstrates that these stocks have grown shareholder wealth at respectable annual rates.
These alternative stocks are better value investments than MSI on the basis of growth and value. These stocks are cheaper than MSI based on the price-to-book ratio and the price-to-sales ratio. What's more, each of these alternative stocks has higher growth prospects than MSI on the basis of analyst predictions and continuation of historical trends:
Ticker | P/E | EPS growth past 5 years | EPS growth next 5 years |
ADI | 14.26 | 14.8% | 11.2% |
ADTN | 15.48 | 6.6% | 12.5% |
ALTR | 15.4 | 27.5% | 12.8% |
APH | 17.86 | 19.8% | 10.5% |
CSCO | 17.32 | 5.6% | 9.4% |
EBIX | 14.18 | 58.0% | 15.0% |
IBM | 14.91 | 18.6% | 10.7% |
MSFT | 10.8 | 17.6% | 10.5% |
ORCL | 15.77 | 21.1% | 12.2% |
PLT | 16.39 | 5.9% | 11.7% |
QLGC | 12.17 | 12.7% | 11.3% |
MSI | 21.15 | -43.0% | 8.5% |
It is clear that these eleven alternative stocks are high quality stocks capable of weathering bad times and delivering positive long-term results. What's more, they are better growth candidates which trade at lower PE multiples. Rather than restrict yourself to concentrated investments in one notable stock like MSI, consider a diversified mix of these eleven securities as a more attractive alternative.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
