No one really knows when the final day of this roaring bull market will be. It could be tomorrow, or it may not happen for years.
The good news is that it’s not important to think about when this fateful day will occur, but rather make certain that your investment portfolio is designed to best weather any future financial storm.
Before you jump to conclusions, I am not talking about hedging or any type of expensive portfolio insurance like option strategies. While these methods have their place, this article is about building a core portfolio position of stocks that will weather and even thrive during hard financial times. Yes, believe it or not, some stocks have been proven to outperform even during the worse financial times.
Everyone knows about the bear market ETF’s, shorting and other tactics for making money during a downward trending market. The inherent problem with these bear market tools is that they lose money during bull markets. What may happen is investors keep putting money into puts, bearish ETF’s or whatever and the bear market just doesn’t materialize. Soon the losses from the bear market protection used outweigh the profits made from the bullish investments. This is not a good position to be in, yet it happens to more than a few investors.
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In order to solve this dilemma, we looked at stocks that posted growing profits since 2009. Remember, the Great Recession did not end until June, 2009, so firms that grew profits in 2009 are impressive.
What was discovered is that companies that are large cash producers are the ones that can best weather financial downturns. Makes sense, right?
Drilling down into the broad market index components of the S&P 500 reveals just 18 stocks that have reported higher earnings since 2009. Cutting into this list even further with a dividend screener that eliminates all companies paying less than 2% annual dividends reveals just 5 stocks fitting the criteria.
These five companies have proven that they can survive and even thrive during hard financial times. While nothing is sure in the financial markets, this is the best use of past data I can fathom.
These strong, cash producing companies will likely continue to thrive no matter what happens to the overall market.
Building a long-term portfolio with these 5 stocks as the core holdings makes powerful sense in today’s toppy market conditions. In fact, it makes sense in every market condition.
Should the bull market continue, these stocks will likely continue higher. Should the market take a turn for the worse, these stocks will likely hold strong or even outperform the falling market.
Here’s a closer look at each of these cash producing machines:
- Wells Fargo (NYSE:WFC)
This uber bank has grown earnings at an astounding average of 40.75% over the last five years. As you might imagine, Wells Fargo is among Warren Buffett’s favorite stocks due to its very solid fundamentals. While many analysts have the shares rated with the lukewarm endorsement of hold, the stock has proven itself as a winner year after year. When you add in the dividend yield of 2.8%, a very compelling case surfaces to own the shares. Remember, the average Wall Street dividend is just 1.7%.
This bank has $1.7 trillion in assets, 8700 locations and a global presence in 36 nations. It is ranked number 29 on Fortune Magazines 2014 ranking of America’s largest corporations.
Right now, the most bullish news for Wells Fargo is the fact that the bank just announced a dividend increase of 2.5 cents per share. This represents an approximate 7% per share increase from last quarter.
- BlackRock (NYSE:BLK)
This asset management company takes second place on our list of top profit growers with a five-year annual profit growth of 23.9%.
You can clearly see from this chart how the dividend and earnings have ramped higher over the years. This is the primary reason BlackRock’s shares are over 80% institutionally owned.
In case you don’t know BlackRock, the firm provides a range of investment and risks management services. The Company’s clients include retail, high net worth (HNW) and institutional investors, consists of pension funds, official institutions, endowments, insurance companies, corporations, financial institutions, central banks and sovereign wealth funds. The Company’s product range includes single- and multi-asset class portfolios investing in equities, fixed income, alternatives and money market instruments.
Shares are higher by over 24% in the last 52 weeks, and the current pullback should create a nice entry opportunity for long-term investors.
- Home Depot (NYSE:HD)
As the only retailer on our list, Home Depot takes third place in 5 year profit growth at 23% average. This big box home improvement giant boasts 2263 stores that serve do it yourself, do it for me, and professional home improvement customers.
Headquartered in Atlanta, Georgia, this home improvement retailer has over 70% institutional ownership attesting to its widespread acceptance among professional money managers.
Shares are higher by over 38% in the last 52 weeks but are currently pulling back. This pull back could provide an ideal entry opportunity for bargain hunting, long-term investors.
- Hershey (NYSE:HSY)
Coming in at number 4 on our list, Hershey is a maker of chocolate and other candies. It produces over 80 brand names and is a well- known, global consumer brand.
The company boasts five-year average profit growth of 19.1% and pays an annual dividend of 2.1%.
As common among these high earning names, Hershey boasts over 76% institutional ownership of its shares.
While this stock has proven itself over the long term, it’s critical to note that it missed first quarter analyst’s estimates by 5.7%. This may be creating an opportunity for savvy, risk embracing long-term bargain hunters to jump in long on the shares. However, waiting for the next quarterly report would be the wise move with this high earning candy company.
- Lorillard (NYSE:LO)
The only so called “sin” stock on our list of consistent cash generating companies, Lorillard manufacturers and sells cigarettes and e-cigs. The company operates in two segments, Lorillard Tobacco Company and Electronic Cigarettes. Smokers will recognize this company as the maker of Blu e-cigarettes and the maker of Newport, Kent, True, and Old Gold traditional tobacco style cigarettes.
The company is on our list since profits have grown by 11.5% on average over the last half decade. It boasts a 3.5% dividend and an impressive greater than 18% earnings growth in the first quarter of 2015.
This chart makes clear the slow but steady climb in EPS, a nice rise in dividends, even an improvement from the 2013 revenue disaster is evident.
Shares have slipped off an aggressive uptrend creating an ideal pull back buy opportunity between $69.00 and $70.00 per share.
The Key Takeaway
Building a core portfolio of the above cash producing giants is a smart investment move. These stocks, from diverse industries, have proven to be solid performers in multiple economic conditions. The trick to surviving a potential market pullback is to be invested in a diversified basket of cash producing machines like these five names. While nothing is guaranteed in the financial markets, the odds are strong that regardless of good times or bad times, these stocks will continue to perform.