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All Contents © 2017The Kiplinger Washington Editors
By James Brumley
| June 2017
When most investors begin their hunt for new stocks to add to their portfolio, it’s not tough to come up with ideas. Popular mega-caps like Apple Inc. (AAPL) and Facebook Inc. (FB) can be great stocks to buy, but the reason they’re typically first to mind is because they dominate headlines, and odds are goods those investors are also users of their products or services.
While storied stocks like Facebook and Apple are fun — particularly in that each has outperformed the market of late — it’s not necessarily healthy to limit a potential list of great stocks to just familiar names within easy reach. Sometimes, the most rewarding trades are the less crowded ones that have managed to remain off the mainstream media’s radar.
With that as the backdrop, here’s a closer look at 10 great stocks — some of the large-cap variety, but a few in the mid-cap “sweet spot” — worth a closer look, even if you’ve barely or even never heard of them.
Sometimes the road less traveled leads you to even better results.
Prices and data are from the original InvestorPlace story published on June 14, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Market Cap: $7.1 billion
Industry: Medical equipment
Mid-cap diagnostics technology outfit PerkinElmer, Inc. doesn’t turn a lot of heads. That said, things got real interesting this week when PerkinElmer was pegged as an ideal acquisition target by Thermo Fisher Scientific Inc. (TMO), which has been on something of a buying spree.
That possibility alone isn’t the only reason any stock should be bought, but that’s OK — that’s not the only thing PerkinElmer has going for it.
PKI also makes good money. Although the past couple of years have just been so-so in terms of revenue for the organization, net income has never been better. 2016’s bottom line of $215.7 million was a record, breaking 2015’s then-record of $188.8 million.
Analysts expect more of the same going forward, too — double-digit profit projections in each of the next two years.
Market Cap: $10.8 billion
Unum Group is anything but a household name. The company is an insurer — primarily a disability insurer — and with a market cap of just more than $10 billion, it’s simply not the kind of company that attracts a lot of attention.
What it has been able to do, though, is drive slow and steady revenue growth, and share that growth with investors. UNM’s dividend at 1.7% is modest, but that’s in part because it’s having trouble keeping up with shares, which have gained 140% in the past five years. But the payout has grown steadily every year since 2009, and Unum just approved another 15% improvement in its payout.
Bonus: Unum also recently approved a $750 million stock buyback program, which will augment per-share profits.
Market Cap: $10.3 billion
Industry: Home furnishings/ supplies
Add Fortune Brands Home & Security Inc. to your list of great stocks to buy while it’s off the radar as well.
Fortune Brands Home & Security, as the name suggests, makes goods for homes. Its core product lines are cabinets, plumbing fixtures and doors, though it’s also got a presence in the home-security technology market.
You’ll know it better as the name behind Norcraft, Omega, Moen, MasterLock, KitchenCraft and more.
It’s a great time to be in the business. Earlier this year, Harvard University’s Joint Center for Housing Studies predicted that spending on home improvements and repairs would grow 6.7% from 2016’s levels. That plays right into Fortune Brands’ hand.
Market Cap: $3.7 billion
Industry: Glass containers and packaging
If you prefer bottled beverages over canned drinks, you can thank Owens-Illinois Inc. for the option. It’s one of the world’s most prolific makers of glass containers, supplying everything from beer bottles to the small bottles containing injectable drugs.
It’s seemingly a boring business to be in. But this isn’t boring — last year’s sales grew 9% to hoist profits by 55%. A turnaround effort appears to be getting traction after a lackluster 2015.
Investors seem to be aware of this fact, considering OI shares recently hit a new 52-week high. But, with a trailing P/E of 18 and a forward-looking P/E of 8.5, Owens-Illinois still qualifies as one of the truly great stocks out there with plenty of room for more upside.
And for the record, earnings estimates have been edging higher, while the company is in the habit of topping estimates.
Market Cap: $18.4 billion
Industry: Carpets and curtains
There’s a good chance you’ve got a Mohawk Industries, Inc. product in your home and don’t even realize it.
For the few of you who think the name sounds familiar: Yes, this is the same Mohawk that sells flooring and carpet under the Mohawk name, as well as Pergo, American Olean, Daltile, Columbia and more.
For the same reason Fortune Brands Home & Security is poised to ride the wave of remodels this year, the stage is set for a solid 2017 (and beyond) from Mohawk. In fact, while revenue growth hasn’t been red-hot of late, the pros expect that to change going forward.
In the meantime, net profit margins have been widening, and are projected to accelerate that growth even with just modest top-line growth. Sales are expected to expand 5.5% next year, yet per-share profits are expected to grow more than 8% in 2018.
Thing is, for Mohawk, that’s par for the course.
Market Cap: $8.8 billion
Industry: Machinery rental
United Rentals, Inc. rents a variety of machinery, ranging from bulldozers to handheld saws to generators.
It’s an ideal time for this line of business, with the economy doing better but not growing fast enough to run away. That means a lot of industrial, mining and construction companies need equipment, but also can’t quite commit to making a purchase of that equipment.
The situation quietly makes URI one of the best stocks to own in this environment.
Analysts certainly see things in that light, anyway. The pros are looking for 8% revenue growth this year, which should lead to a 12% increase in per-share profits.
Market Cap: $55.5 billion
Industry: Communications real estate
The next time you’re outside somewhere with a reasonably clear view of the landscape, take a look around and count the number of cell phone towers you see. They’re everywhere… on top of buildings, in the middle of farms and wedged in between neighborhoods and business districts.
All told, there are an estimated 215,000 cell towers in the United States alone.
Contrary to popular belief, most of these towers aren’t owned and operated by wireless service providers. Access to those towers is leased by carriers from the owners of those towers like American Tower Corp., which owns 28,463 of those massive structures.
American Tower is established as a real estate investment trust (REIT), making it ideally suited as an income investment. The current yield is just under 2%. The payout has been steadily increasing since 2012, as has the stock’s value. In fact, it has approximately doubled in value for that time frame, making it one of the top performers among large-cap stocks.
The only thing we have to fear with AMT is people no longer using their cell phones. Needless to say, that’s not a big worry.
Market Cap: $19.1 billion
Industry: Integrated circuits
A stake in Skyworks Solutions Inc. won’t come cheap. Shares are trading at 21.6 times their trailing 12-month earnings.
They may be worth the premium, though.
Sales are projected to grow more than 10% this year and next year, setting the stage for 13% income growth in 2017 and growth of nearly 14% in 2018. That translates into a forward-looking P/E of 14.6.
How exactly might Skyworks Solutions accomplish that? Riding Apple’s coattails. Skyworks supplies technological components found in the iPhone, and that’s not expected to change with the upcoming iPhone 8.
Yes, the noise about iPhone saturation and the constant concern that Apple could switch suppliers creates a psychological ceiling. Those ideas have been around for years now, however, and it hasn’t been a problem yet.
Market Cap: $33.8 billion
Industry: Investment management
Veteran investors may have heard of the State Street Corp. name before. It has a fairly prolific asset management enterprise in operation, it’s responsible for the SPDR line of exchange-traded funds, and it also offers a variety of back-office services for major financial institutions.
What most investors may not realize, however, is that State Street is a standalone company, doing business under the same name.
Business is good. Last year’s per-share profit of $4.97 was up 11% on a year-over-year basis, and analysts are looking for comparable growth this year and next. Perhaps the biggest reason STT has earned a spot on a list of obscure large-cap stocks to buy, though, is that it’s priced at a very affordable trailing P/E of less than 17.
Market Cap: $17.4 billion
Industry: Construction materials
Finally, add Vulcan Materials Company to your list of great stocks to buy that you may or may not have heard of.
Vulcan Materials supplies sand, stone and gravel, primarily to the construction industry. As such, it’s more or less a heavy-construction trade, but it’s not quite as sensitive to the economic cycle as pure heavy-construction names are.
Be that as it may, while homebuilding may be hitting a headwind, nonresidential construction spending is still relatively strong. We saw a lull in April, but the broad trend for the much more important major construction market remains positive.
The kicker: If you believe that President Donald Trump will at least put his infrastructure spending plan in place (which is the one area where he and Democrats can more or less agree), then Vulcan Materials is perfectly positioned for growth.
This article is from James Brumley of InvestorPlace. As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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