There are many reasons to invest in stocks, but perhaps none so compelling as retirement planning. That said, I am going to examine 5 companies I’ve been following and show you why their stock should be considered for your version of the ultimate retirement portfolio.
Caterpillar, Inc. (NYSE:CAT) is the first company we’ll consider: The machinery sector is decidedly cyclical, as you know. You may be asking yourself, “Why this stock?” Remember, retirement investments are typically long term investments and, as such, mitigate the cyclical nature of such stock. Also, superseding this concern, are the rock solid fundamentals of Caterpillar. CAT boasts a 34.36 return on equity, a price to book of 3.72 and tosses a 2.30% dividend into the bargain! October 7th, CAT opened a new 270,000 square foot facility in Sanford, North Carolina, (a right to work state). This facility was needed to meet increased demand for skid steer, compact track and multi-terrain loaders and augments existing production facilities in Sanford. In contrast, CNH Global N.V. (NYSE:CNH), a competitor in the sector, has a return on equity of 10.09, and offers no dividend. Analyst consensus demonstrates less enthusiasm for CNH in comparison to CAT.
CAT’s been around for 85 years and, while I’ll grant you that wrinkles do not guarantee return, the company isn’t likely to be rendered obsolete by something cooked up in Silicon Valley! I’m keen on this one and the analysts average it a buy as well.
3M Co. (NYSE:MMM) is in the conglomerates sector where it is always difficult to find a candidate for direct comparison. I’ve chosen to square off with Avery Dennison Corporation (NYSE:AVY) because it does compete directly with 3M in certain market segments. MMM is a centenarian and has an excellent history of performance. AVY, its junior by more than 3 decades is certainly no slouch. I like them both, but I give the edge to 3M for the following reasons. I am impressed with 3M’s return on equity (27.17). AVY is at 18.45. AVY beats 3M on dividend yield by 70 basis points (3.60% to the latter’s 2.90%). However, 3M’s earnings per share (5.89) more than double the 2.78 generated by AVY. I’m concerned that AVY may be light on investing profits into research and development. Recent news of an Avery sticky note giveaway promotion, signals it is playing catch-up rather than leading the pack. The return on equity concerns me from a management standpoint. Analyst opinion favors MMM by a significant margin as well. In short, my confidence level for sustained performance is higher with MMM.
Let’s turn our attention to the oil and gas industry. First up, Chevron Corp. (NYSE:CVX); this little dynamo sparkles with a 3.20% dividend yield, a 21.33 return on equity and, a projected earnings growth ratio of 1.54. If we compare this to BP plc, we see a dividend yield for it of 3.40%, a projected earnings growth ratio of 1.43 and a return on equity of 20.96, a virtual dead heat. I’m favoring Chevron Corp. and I do so because of the disparity between net incomes per employee. I use this gem of a statistic rather than a coin toss. I believe it is indicative of good management at all levels. A Chevron employee generates $37,258 of net income, while his BP counterpart is generating $25,207. Analyst consensus falls in favor of Chevron too!
Our next oil stock up for consideration is Exxon Mobil Corporation (NYSE:XOM). Exxon has a 2.50% dividend yield, a return on equity of 25.32 and a price to book of 2.31. Rival ConocoPhillips (NYSE:COP) counters with a 3.90% dividend, a 16.97 return on equity and a projecting earnings growth of…what…-38.90! I might have expected something like this with BP given the Gulf of Mexico spill, but what is driving this big negative for ConocoPhillips? In my opinion, there are two possibilities. First, ConocoPhillips entered into a joint venture with BP, circa January 2010, to build a pipeline from Alaska’s north slopes to the continental United States at an anticipated cost of $20 billion. TransCanada Corporation (NYSE:TRP) has plans to build a competing pipeline. These 2 aren’t talking. TRP has more experience and the support of the federal government. It will be interesting to see how this plays out. Since BP isn’t showing a similar negative potential earnings growth, there must be something else driving it. ConocoPhillips is spinning off its refining arm, forming a new, yet to be named, company. The exploration and production segment of the business will retain the ConocoPhillips moniker. Current CEO, Jim Mulva, is scheduled to retire when the spin off is concluded. All this makes long range earnings growth estimates for ConocoPhillips impossible.. I’m not keen on buying a pig in a poke, so I have to give my support to XOM. For what it’s worth, that puts me in the analysts’ camp.
Moving on to the technology sector, we’ll look at France Telecom (FTE) and see how it stacks up against Vodaphone Group plc (NASDAQ:VOD). FTE features a hefty 11.80% dividend yield compared with VOD’s modest, yet respectable, 5.40%. Things take an interesting turn when we look at the earning growth figures. FTE comes in at 6.11 which may suggest the stock is overvalued when compared with the 0.65 of Vodaphone. This is an unacceptable conclusion in my opinion, with France Telecom’s 1.2 price to book ratio. I prefer to conclude France Telecom is a mature, slow growth company and its .87 beta is very attractive. Analysts view both stocks as a buy. I have to come down on the side of FTE based on net income per employee. A France Telecom employee brings $24,904 to the bottom-line in comparison with just $14,786 for the Vodaphone employee. As I see it, FTE is better managed.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.