Let’s face it, no one likes to see their nest egg start to shrink, but that’s just what’s been happening this year with the market stumbling right out of the gate. Some investors see trying times like this as their glass starting to empty, while others see the current turmoil as an opportunity to refill their glass so that it overflows when the good times are here again. We’re in that second group, because we’re seeing some really great bargains out there among stocks that offer the long-term stability and security that we’d want to own in our golden years. In fact, we think that these are perfect stocks for someone already in retirement to consider adding to their own portfolio today.
Matt DiLallo: The energy market has been decimated over the past year after crashing crude prices caused a steep downturn in the industry. That downturn has spilled over into the energy midstream space partially due to worries about growth as well as concerns about the availability of credit that these companies bank on to fund that growth. This is leading to a lot of indiscriminate selling within the sector, which is creating some real bargains. One such bargain is Spectra Energy (NYSE:SE), which is down 25% over the past year.
Spectra Energy, at its core, is a natural gas transportation company that’s primarily focused on supplying utilities with natural gas. It doesn’t produce any oil, nor does it have much exposure to commodity prices. Instead, the company is built around the following three core principles:
Stable — 95% of its cash flow is supported by fee-based assets with minimal volume exposure. The company is also committed to maintaining an investment grade balance sheet.
Disciplined — It has consistently pursued growth projects that offer attractive returns, are primarily demand-driven, and are funded in a prudent manner.
Reliable — The company offers an attractive, sustainable dividend (with a current yield of around 6%) that’s stable thanks to a strong coverage ratio. Further, that dividend is expected to grow by $0.14 per share through 2018 thanks to the disciplined growth projects Spectra Energy has secured.
Spectra Energy checks all the boxes of a stock that someone who’s retired would want in a stock. Even better, it’s selling for a compelling value due to the current market’s recent fit.
Steve Symington: Shares of the MasterCard (NYSE:MA) briefly jumped two weeks ago with good reason, as investors celebrated the digital payments technology company’s strong fourth-quarter 2015 earnings report. But MasterCard has largely given up those gains since then, giving opportunistic investors a perfect chance to buy this high-quality company at a discount.
Sure, quarterly revenue climbed a modest 4.4% year over year to $2.52 billion, but keep in mind that includes a five percentage point negative impact from foreign exchange given the ongoing strength of the U.S. dollar — a temporary problem and not indicative of deeper issues underlying MasterCards actual business. To be sure, worldwide purchase volume climbed 12% on a local currency basis compared to last year’s fourth quarter, to $883 billion, gross dollar volume climbed 12% to $1.2 trillion, and processed transactions climbed 12% to 13 billion. Meanwhile, MasterCard’s net income increased 11% over the same period (or 18% at constant currency) to $890 million, and net income per share grew 14% (or 22% at constant currency) to $0.79. In short, MasterCard continues to deliver solid results despite the current challenging economic environment.
But arguably more important is the fact MasterCard should be able to sustain growth as it continues to navigate the world’s transition from cash to electronic payments, regardless of existing competitors trying to grab a piece of the same enormous pie. As MasterCard CEO Ajay Banga stated during last quarter’s conference call, “When 85% of the world’s transactions are still in cash, there is a lot of space out there. […] We can all find growth in there and still have a pretty good run rate for this industry for some years to come.”
In the end, with shares of MasterCard now down more than 15% so far in 2016 as of this writing, I think this is a great time for senior citizens — or any value-oriented investor, for that matter — to open or add to a position in MasterCard.
George Budwell: Although shares of the Botox-maker Allergan are down by double-digits this year, there are several compelling reasons to believe this downturn will be temporary. First off, Allergan’s forthcoming merger with Pfizer (NYSE:PFE) implies that the stock is undervalued by at least 22% from current levels — based on the 11.3 shares of Pfizer for every share of Allergan arrangement announced last year. That fact alone makes Allergan an intriguing value stock for older individuals looking for safe investments in a turbulent market.
Of course, the market hasn’t been listening to this logic of late because it’s deeply concerned that the U.S. Treasury will figure out some way to block this deal. This fear, though, ignores the underlying catalyst behind this merger, namely growth. The combined entity of Allergan and Pfizer would generate a monstrous growth company with perhaps unparalleled pricing power due to its extensive product portfolio. Put simply, it’s highly unlikely that any new tax rules are going to be enough to stop this merger.
In the next few weeks, Allergan is also expected to close its deal with Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) for its generic-drug unit. With Teva reportedly paying $40.5 billion for this product portfolio, Allergan could wipe most of its $42.7 billion in debt off of its balance sheet — or in the very least pay down enough to significantly de-lever its balance sheet. While this divestiture is projected to result in a minor dip in Allergan’s total annual revenue in 2016, it should also help the company focus on its growing branded drug business — a business that should really take flight once paired with Pfizer’s enormous infrastructure and expertise.
All told, Allergan represents a fairly safe large-cap stock because of its improving balance sheet, high growth prospects, and top notch management that has a proven track record of creating enormous value for shareholders.
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George Budwell owns shares of Allergan PLC and Pfizer. Matt DiLallo owns shares of MasterCard. Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends MasterCard and Spectra Energy. The Motley Fool recommends Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.