15 Smart Investments to Make in 2019
The stock market has been on a roller-coaster ride in recent weeks and months, but experts have spotted some relatively safe bets for investors. "The specter of higher interest rates is driving the market selloff more than any other factor," said Robert Johnson, a professor of finance at the Heider College of Business at Creighton University. He has co-authored research showing that certain stock market sectors perform better than others when the Federal Reserve raises rates. With that in mind, here's a look at some investments to consider in 2019.
"People need to eat, put gas in their cars, brush their teeth, and heat their homes, regardless of the direction of interest rates. ... So nervous investors who want to stay invested in the stock market should favor the energy, utility, consumer good, and foods sectors," Johnson said. Sectors to stay away from: autos, durable goods such as refrigerators, retail, and apparel.
Johnson is particularly bullish on General Mills. The American multinational manufacturer of branded consumer foods such as Cocoa Puffs, Lucky Charms, and Yoplait offers a strong dividend yield of 5.05 percent and is selling near its lowest price in a year. "People are going to continue eating cereal and yogurt, no matter the economic environment," he said.
Look for value stocks over growth stocks — value stocks are safer, Johnson said. What's the difference? Growth stocks are more obvious buys, named because they're fast-growing relative to the rest of the market or other companies in their industry. Value stocks are undervalued gems and, in investment terms, generally have lower price-to-earnings and price-to-book ratios, along with higher dividend yields.
Bonds pay interest over time, then repay your investment at the end of their term. The greatest risk for bondholders is the likelihood that interest rates will rise in 2019, Johnson noted: As interest rates go up, existing bonds go down in value. However, "long-term bonds fall much more," he said. Investors considering moving into bonds are likely to be better served by short-term bonds.
Genuine Parts Co. has increased its dividend for 61 consecutive years, Johnson said. The Atlanta company produces replacement auto parts, a business that's somewhat recession-proof. "In difficult economic times, people tend to keep their older automobiles longer and delay purchasing new cars," he said. GPC also has a global presence. Its stock is selling for around $93 a share, with a dividend yield of 3.09 percent, which exceeds the 2.79 percent 10-year government bond yield, Johnson said.
An American marketer of consumer and commercial products worldwide, Newell encompasses what Johnson described as a host of well-recognized, unsexy brands including Rubbermaid food storage, Yankee Candle, Sharpie, Waterman, and dozens of others. "The stock has a handsome forward dividend yield of 4.88 percent," Johnson said. "Activist investor Carl Icahn recently increased his holdings in NWL, so expect the company to make changes to improve performance."
Johnson's favorite stock is Berkshire Hathaway, the Nebraska conglomerate founded by Warren Buffett, with subsidiaries in industries including insurance, railroads, and utilities. It owns well-known companies including Dairy Queen, Fruit of the Loom, and See's Candies, as well as stock and debt in major corporations including Apple and Bank of America. In other words, Berkshire Hathaway invests mostly in an array of businesses millennials would consider old-fashioned and staid, but that's what makes it less volatile. The firm has had extraordinary returns since inception, averaging 20 percent annually, which is why Buffett is famed as the "Oracle of Omaha."
Johnson said Buffett told him in 2010 that Coca-Cola was the most valuable brand in the world. "He has put his money where his mouth is, as Coca-Cola is one of Berkshire Hathaway's core holdings — [it] owns nearly 10 percent of the company. It can serve as a cornerstone to anyone's portfolio holdings." It has increased dividends annually since 1963, Johnson said, and branched out far beyond soda to sell Costa Coffee and beverages as Odwalla, Simply Orange, and Vitaminwater.
Investors seeking returns not correlated with the stock market should consider agriculture, says Chris Rawley, CEO of Harvest Returns. "Over the long term, investments in U.S. farmland have outpaced the S&P 500 and other indices," Rawley said. "A growing population and consumer demand for protein make fractional ownership of farms and ranches a compelling opportunity. Crowdfunding now makes it possible to access private offerings that were formerly only available to institutional investors." An agriculture investment can provide passive income and a hedge against inflation.
By many accounts, health care will continue to be a safe bet, as it has been for the past decade. This is due in large part to America's aging population relying so heavily on health care services. One of the top-performing sectors of 2018, health care has also offered good dividend yields and historically outperformed the market amid rising interest rates.
Taking advantage of high consumer confidence and low unemployment, the consumer discretionary segment — businesses selling non-essentials bought with consumers' "discretionary" income, from McDonald's to Harley-Davidson to Estée Lauder — should also fare well in the year ahead. But be careful about which companies you buy into. Some retailers are being hurt by online competition such as Amazon. Look for companies that remain strong amid such challenges.
Thanks to an increase in U.S. military spending, the aerospace industry and companies such as Boeing and Lockheed Martin continue to be solid bets, according to some experts. And don't overlook companies that are part of the aerospace supply chain. United Technologies is one example: The company recently acquired Rockwell Collins, another aerospace equipment supplier.
In energy, Phillips 66 is Johnson's top pick for 2019 for a variety of reasons, among them that PSX stock pays a handsome 3.6 percent dividend yield. "While Warren Buffett's Berkshire Hathaway recently trimmed its holdings of PSX, the firm has said it will continue to be a long-term holder of the stock," Johnson said. He also noted that Phillips 66 insiders have been buying the stock, most notably director J. Brian Ferguson, who recently purchased nearly $2 million worth. "Insider buying is a very positive sign."
Also in the energy sector, Occidental Petroleum has laid the groundwork to have a successful 2019 by spending much of the past two years improving profitability, according to The Motley Fool. The company is also poised to increase production by more than 10 percent before the end of the coming year — and says it will continue to grow production by 5 percent to 8 percent for the next several years.
For investors who would prefer to support a renewable energy company, TerraForm Power runs facilities throughout North and South America and Europe that generate wind and solar power. In addition to having a very stable cash flow and offering a high dividend yield, the Motley Fool reports, TerraForm is on track to increase its cash flow per share by about 5 percent to 8 percent until about 2022, which will likely further increase dividends.
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