First off, congratulations on your retirement. If you’re like most Americans, you probably worked for anywhere from 30 to 50 years, and your retirement is well-deserved. However, in case you haven’t noticed, we’re living longer than ever, which means we need our retirement nest eggs to match our increased longevity. This mean retirees never quite retire from investing.
With this in mind, we asked three of our Foolish investors to offer their take on a stock that retirees should consider buying today. Making the list were Wells Fargo (NYSE:WFC), Grubhub (NYSE:GRUB), and General Mills (NYSE:GIS).
Bet on a rebound for this banking giant
Sean Williams (Wells Fargo): Congratulations on your retirement! Chances are that if you’re newly retired, you’re looking to preserve your capital and generate income. However, with people living longer than ever, you’ll also want to ensure any investments you make have an opportunity to appreciate, too. That’s why I’d overlook the short-term issues at Wells Fargo and consider this banking giant a buy.
In August, Wells Fargo added to its recent PR nightmare when it announced that it had uncovered additional fake accounts that were opened by its employees. In total, 3.5 million, not the previously reported 2.1 million, fake accounts had been opened as a result of the company’s aggressive cross-selling programs at the branch level. Wells Fargo has certainly lost customers and a good amount of its reputation in the interim over this debacle. But you know what, it’s far from the end of the world, and that’s what new retirees should understand.
If we look back at previous PR issues in the banking industry, they’ve always blown over. Bank of America‘s (NYSE:BAC) $61 billion-plus in mortgage-based fines from the Great Recession? Mostly a distant memory now. Or how about Bank of America trying to pass along a monthly fee to use debit cards? Hardly anyone remembers this happened in 2011. The point being that consumers have a short-term memory for PR issues, giving Wells Fargo plenty of hope for the future.
If we push aside the company’s recent PR issues and look at Wells Fargo from a financial perspective, retirees should be happy. Wells Fargo focuses on bread and butter loan and deposit growth while avoiding derivatives and other risky revenue channels. The result has been steady deposit growth in the mid-single-digits, and low single-digit loan growth. This is why it has among the highest return on assets of any money center bank.
Currently valued at 1.48 times its tangible book value (two times tangible book is often a good measure of fair value for a bank), and sporting a 2.9% dividend yield, I believe there to be value for new retirees with Wells Fargo’s stock.
What’s the sense in cooking for one?
Rich Smith (GrubHub): Investing master Peter Lynch put it best (and simplest): “Buy what you know.” Even if you haven’t already encountered this stock already, if you’ve reached retirement age, I have a hunch you’re going to being getting “to know” GrubHub pretty soon.
Why do I think this? In a word: Mom.
My mother retired a few years ago, you see. She lives quite near us now, so we see her often. And one thing I’ve noticed is this: Mom doesn’t cook a lot anymore. I can’t say as I blame her. Without a gaggle of hungry mouths to feed, cooking today may seem more trouble than it’s worth.
Think about it. There are advantages to cooking for a family. It’s a way to get everyone around the table to talk about their day, for one thing. It’s a way to ensure healthy eating — keeping all those preservatives and chemicals from packaged foods off the table. Maybe most importantly for a family on a tight budget, cooking at home allows you to buy ingredients in bulk, lowering the unit-cost of each meal. But when you cook for one, buying in bulk is just an invitation to see food spoil. It becomes a race to “eat it before it rots.”
Maybe that’s why Mom eats out, and orders in, more often these days than before. And if that’s the case, with more and more folks retiring these days, I’d expect GrubHub, which offers one-stop shopping for folks looking to order restaurant take-out and delivery, to benefit.
The numbers sure seem to suggest this. GrubHub’s sales have grown seven-fold over the past five years, and its profits are up 650%. If I was looking for a stock to buy in retirement, GrubHub is one I’d definitely consider looking into.
Retiring on what’s found in your pantry
Sean O’Reilly (General Mills): Retirement is the time to kick back, relax, and invest one’s savings more conservatively. Unfortunately, this is easier said than done in a world of sky-high stock valuations and record-low bond yields. Fortunately, an uncertain world and few ideal investment options are why my stock pick for retirees to consider today, General Mills, is perfect.
The odds are good the reader has some General Mill’s consumer food products in their home right now. Its top brands, which include cereals like Cheerios, Wheaties, Total, and Chex, pancake mix Bisquick, Yoplait yogurt, and Progresso soups are distributed across North America (2/3 of FY 2017 sales), Europe, Asia, and Latin America.
Recent results have been mixed, with organic sales in fiscal Q1 (after removing the additive effect of newly acquired brands) fell 5% in North America. Worse, total sales fell 3.5% year over year to $3.8 billion. However, when announcing the quarter’s results, noted that the company was performing in line with expectations and that plans were in place to renew growth and set the company up for future success. Newly installed CEO Jeff Harmening was put in the top spot to achieve these ends.
Looking toward the future, analysts are on board with the company’s plans. Analysts polled by S&P Global Market Intelligence expect earnings to rebound next year and grow modestly to $3.85 per share by FY 2022 – up 25% from this year’s estimated $3.08 per share. With a dividend yield of 3.77% and a portfolio of indispensable consumer products brands, General Mills is a fantastic stock for retirees looking for a name they can sleep safely owning.
Rich Smith has no position in any of the stocks mentioned. Sean O’Reilly has no position in any of the stocks mentioned. Sean Williams owns shares of Bank of America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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