Markets
MPW

The 1 Stock You've Been Overlooking for Your Roth IRA

If you want to maximize your Roth IRA, don't overlook these three stocks. Image source: Author.

If you have a Roth IRA (or are planning to open one soon), then you probably know how amazing of an investment tool it is, allowing you to build up a source of tax-free wealth and income for retirement.

It's also important to make the best investing decisions to take best advantage of that wealth-creation. We reached out to three regular contributors and asked them, "What is one stock that people overlook for their Roth IRA?" They gave us three companies from very different business, but each has some interesting characteristics that makes it compelling. Here's what they had to tell us.

Years of growth ahead

Tim Green : For investors with decades left until retirement, Roth IRAs are perfect for stocks with plenty of long-term growth potential. Paying capital gains taxes on holdings that have appreciated by hundreds, or even thousands, of percentage points over many years is no fun, making a Roth IRA a good choice to hold attractive growth stocks. Whole Foods Market is a great example.

The upscale grocer has been going through a bit of a rough patch lately, and its stock has tumbled more than 45% over the past year. Comparable-store sales have been falling, driven in part by an overcharging incident last year, but also by increasing competition in the natural foods space, particularly from traditional supermarkets. Going forward, there's a chance that Whole Foods will see its margins permanently contract as competition heats up.

But despite these challenges, Whole Foods still has plenty of growth ahead of it. The company operates about 400 stores, with a long-term goal of tripling that number to 1,200. On top of this growth, Whole Foods' value-oriented 365 by Whole Foods Market stores, slated to begin rolling out this year, offers the company an opportunity to go after more value-conscious consumers who have shunned the company's "Whole Paycheck" image thus far.

A lot can still go wrong for Whole Foods, but with the stock trading at the lowest level relative to earnings since the financial crisis, tossing some shares into a Roth IRA isn't a bad idea.

Healthcare or real estate? Both

: Investors often overlook that some stocks are better suited than others for a Roth IRA. Real estate investment trusts, or REITs, top that list because the generous dividends they pay can compound tax free in that account. Even better, that income is never taxed when you do retire.

While there are a lot of REITs out there, one of my favorites is MedicalProperties Trust , which is a company that primarily invests in hospitals. Currently, the company owns just under 200 properties across 29 states and in five European countries. The reason it has chosen to invest almost exclusively in hospitals is that they provide steady and reliable income because of their being such an important part of a community's healthcare infrastructure.

Over the past three years, Medical Properties Trust has doubled its asset base by making smart hospital acquisitions as well as providing financing for the buildout of healthcare real estate. However, the company has financed this growth very prudently and has actually grown into an investment-grade credit rating by reducing its single-tenant concentration while not growing its dividend as fast as its cash flow in order to strengthen its payout ratio. That said, despite paying out only two-thirds of its cash flow, Medical Properties Trust yields a whopping 8.8%. So not only is the income very generous, but it's also rock-solid for the long term, making it a stock you don't want to overlook for your Roth IRA.

Income and value in the energy sector

: ONEOK has been caught up in the oil and gas beatdown over the past year, as its gathering business suffered because of commodity price exposure. But the company has largely addressed those issues with new fee-based contracts that provide solid and predictable cash flows. Furthermore, the company recently reached a finance deal that will cover the company's capital growth plans for the next year-plus.

In short, the risks of investing in this natural gas pipeline company have been largely addressed, but the stock is still cheap. Furthermore, unlike most midstream investments, ONEOK isn't a master limited partnership, which can sometimes create taxable income even inside a Roth IRA.

ONEOK isn't risk-free but is probably much safer than the market thinks it is right now. Furthermore, the dividend yield is more than 12% on a forward basis today, making it one of the highest relatively secure payouts you'll find. Most important for IRA investors, ONEOK's core business, natural gas and NGL gathering and pipelines, is on track to grow substantially for years to come.

Combined, that makes ONEOK a great investment choice for a Roth IRA.

The next billion-dollar iSecret

The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article The 1 Stock You've Been Overlooking for Your Roth IRA originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Jason Hall owns shares of Oneok and Whole Foods Market. Matt DiLallo owns shares of Medical Properties Trust, and Whole Foods Market. Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Oneok and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

MPW OKE

Other Topics

Stocks

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More