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All Contents © 2019The Kiplinger Washington Editors
By Charles Sizemore
| July 21, 2017
My new Samsung Galaxy smartphone is waterproof … or at least the box says it is. I’m not so sure, myself. While I’m sure a little splash of water won’t hurt the phone, I’m not planning on taking it on any deep-sea adventures any time soon. We’ll call it “water resistant” rather than fully “waterproof.”
Along the same lines, there is no such thing as a truly apocalypse-proof stock.
But the very top stocks come close.
They have durable competitive “moats,” bulletproof balance sheets and business models that are future-proof (or at least as future-proof as you can ever reasonably hope to be). Nothing short of the plot line from the Terminator coming true could reasonably be expected to put these companies at risk.
Federal Reserve Chairwoman Janet Yellen might prove to be correct when she says that we won’t see another major financial crisis in our lifetime. But it’s nice to have stocks in your portfolio that you know would be able to survive one were it to happen.
Today, we’re going to look at seven of the top stocks that would likely sail through the next major crisis unscathed. None are particularly sexy, but that’s a good thing. When it comes to building a durable portfolio, boring is beautiful.
So with no further ado, here are seven stocks that would survive the apocalypse … or come awfully close!
Prices and data are from the original InvestorPlace story published on July 18, 2017. Click on ticker-symbol links in each slide for current prices and more.
If Skynet ever becomes self-aware and decides to eliminate the human race, I have a feeling that McDonald’s Corporation (MCD) would somehow find a new menu item that Terminator robots would buy and eat. The company is just that adaptable.
Think about how much the world has changed since McDonald’s was founded in the mid-1950s and how diets have evolved. Yet McDonald’s is still here and still going strong. The company has been extremely successful in updating its menu and keeping it in sync with with current diet trends.
Just a few years ago, it was widely believed that the rise of “fast casual” chains like Chipotle Mexican Grill, Inc. (CMG) would be the end of McDonald’s. Americans were eating healthier, after all, and the McDonald’s brand was looking a little passé.
Well, that’s not how it turned out. Today, it’s Chipotle that is struggling — thanks to yet another health scare, ironically enough — and McDonald’s that is delighting investors and trading near all-time highs.
The McDonald’s format gets stale about once every 10 years, and then the company has to reinvent itself. Might there come a time when this cycle breaks down and McDonald’s simply fails to reboot?
Maybe. But the company has been flipping burgers for 60 years, and it hasn’t happened yet.
I believe in a greener future, and I sincerely hope that I live long enough to see a world without fossil fuels. But I also fully believe that that day is likely to be decades from now, and in the meantime, crude oil and natural gas are still the lifeblood of our economy.
This brings me to Enterprise Products Partners L.P. (EPD).
Enterprise is widely considered to be the bluest of the master limited partnership (MLP) blue chips. In a sector known for flamboyant cowboy capitalism, EPD’s stability and sober-mindedness has made it one of the top stocks in the space.
The great crude-oil rout that started in 2014 absolutely wreaked havoc on the aggressive MLPs that had used excessive debt to turbocharge their cash distribution growth. But Enterprise chose to be the tortoise rather than the hare. While peers like Kinder Morgan Inc (KMI) and Energy Transfer Partners LP (ETP) have had to either slash their payouts or resort to stealth cuts via questionable mergers, Enterprise has been plodding along just fine, raising its distribution by 5% to 6% every year like clockwork.
So long as America needs traditional fossil fuels, I’m content to own Enterprise Products and enjoy its 6% yield.
Few companies are more end-of-the-world-proof than 3M Co. (MMM). It makes Scotch tape and Post-It notes, for crying out loud.
3M is more than just tape and sticky notes, of course. The company has a diversified product portfolio of office supplies, adhesives, filters, cleaning products and even medical supplies.
And all of the diverse products have one thing in common: They tend to be basic staple products that are generally non-cyclical. Sure, when the economy is bad, companies might scale back office supply purchases a little — but not enough to ever put 3M at serious risk. This is a company with well more than 100 years of operating history.
How stable is 3M?
Well, to start, it’s a Dividend Aristocrat that has raised its paying for 59 consecutive years (and counting), and I expect many more years of dividend hikes to come. 3M currently pays out about half of its earnings as dividends, meaning it has room to grow.
Are you likely to get rich owning 3M? Probably not. This is a mature, slow-growth company. But it’s also one that is very unlikely to ever blow up on you or get seriously disrupted by a new competitor.
Earlier, I mentioned competitive moats, so it is only appropriate that I include the company built by the man — Warren Buffett — that coined the term, Berkshire Hathaway Inc. (BRK.B).
This is a little ironic given that Berkshire Hathaway was, in an earlier life, a failed textile producer. But over the decades, the Oracle of Omaha has managed to transform Berkshire into one of the most durable conglomerates in the world.
When it seemed the world was ending during the 2008 meltdown, storied companies like General Electric Company (GE) and Goldman Sachs Group Inc (GS) had to go to Buffett hat in hand to ask for loans … and Buffett was able to deliver because Berkshire Hathaway was the only financial company strong enough to lend the money.
The Oracle won’t be with us forever. The man is 86 years old and will someday retire to that big stock exchange in the sky. And when that day eventually comes, Berkshire Hathaway will no doubt lose some of its clout. You simply can’t replace a man like Warren Buffett.
But the company he’ll leave behind will be one with a fortress balance sheet and an eclectic portfolio of cash-flowing businesses that are mostly future-proof.
Consumer electronics powerhouse Apple Inc. (AAPL) might seem like an odd choice for a list of best stocks to survive the end of days. After all, consumers are fickle, and disruptor companies like Apple are always at risk of being disrupted themselves.
But just take a minute and look at Apple’s balance sheet. As of last quarter, AAPL had $257 billion in cash and equivalents … more than a quarter of a trillion dollars. And Apple adds to that gargantuan hoard every single day.
Apple is also doing everything it can to pull its high-end users deeper and deeper into its ecosystem. Once you have your reading and music libraries, your photo cloud storage and potentially hundreds of dollars’ worth of apps in Apple’s ecosystem, switching to an Android phone becomes cost prohibitive. This was a large part of Warren Buffett’s rationale for pouring money into Apple earlier this year.
Do I think Apple will still be around 100 years from now? Probably not. By then, we’ll likely all be communicating telepathically via some contraption that Elon Musk invented from his laboratory on Mars.
But for at least the next decade, Apple seems all but indestructible.
Retail REITs aren’t getting a lot of love these days, as investors fixate on the rise of Amazon.com, Inc. (AMZN) at the expenses of brick-and-mortar retailers. But when I look at blue-chip retail REIT Realty Income Corp (O), I see very little cause for concern.
I’m comfortable enough with Realty Income’s prospects that, years ago, I pledged to never sell the shares I’ve accumulated. I intend to let the reinvested dividends compound for another two decades before I use the income stream in retirement.
Realty Income has a portfolio of nearly 5,000 properties leased out to 250 tenants spread out across 49 states and Puerto Rico. And its largest tenant — pharmacy chain Walgreens Boots Alliance Inc. (WBA) — accounts for less than 7% of its portfolio.
I don’t know that any retail business can truly be said to be “Amazon-proof.” But the companies that make up Realty Income’s portfolio come awfully close. Some of its largest tenants are gyms, movie theaters and convenience stores.
Realty Income is a slow grower, but I’m OK with that. It pays a dividend around 4.5% and has raised that dividend at a 4.7% annual clip since 1994.
Along the same line, I consider rival retail REIT National Retail Properties, Inc. (NNN) to be pretty close to apocalypse-proof. Among retail REITs, Realty Income and National Retail Properties are the two dominant, blue-chip players. They’re generally considered to be the best stocks in the space and usually trade at a premium to their peers as a result.
National Retail Properties has a diversified portfolio of 2,543 properties spread across 48 states. And like its rival Realty Income, its tenants tend to be mostly Amazon-proof. Its two largest holdings — making up nearly 10% of the portfolio — are gas station and car wash chains. I don’t see Amazon drones putting gas in your car or cleaning it any time soon.
NNN also has a healthy allocation to gyms, movie theaters and plenty of other service-oriented retail tenants, all of which are mostly immune to the Amazon onslaught.
National Retail Properties has an attractive 4.6% dividend that will help you slowly build wealth over time. And with NNN, you’re extremely unlikely to ever lose much if you hold the stock for a reasonable time horizon.
This article is from Charles Sizemore of InvestorPlace. As of this writing, he was long AAPL, EPD, KMI and O.
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