3 Stocks to Buy for Long-Term Growth and High, Treasury-Beating Yields
The market wasn’t pleased with the dreary economic outlook that the Fed provided on Wednesday, when Jerome Powell and the central bank signaled that interest rates would likely stay near zero through 2023. The Fed also discussed further the newly raised bar that will have to be climbed before it thinks about raising rates again.
The economic outlook provided by Powell points to growing worries about businesses and people that have not even started to return to anything close to normal over five months after the initial lockdowns. The jobless claims have continued to stabilize, but they are still staggering, especially compared to pre-coronavirus levels. That said, the unemployment rate fell to 8.4% in August, from 10.2% in July—it was at nearly 15% in April.
Some economist and analysts argue that these improving numbers can be misleading, with some people no longer looking for work. Yet the labor force participation rate has picked up since April’s lows of 60.2% to hit 61.7% in August—61.4% in July.
Looking ahead, the market might be getting a little more nervous about what’s next on the virus front, as it becomes increasingly less convinced about a vaccine arriving anytime soon. On top of that, the unknowns of the upcoming election present threats to the market, via increased volatility and more.
We have already seen a 10% correction, which could help create less room for another big tumble. On top of that, the TINA effect—there is no alternative—will likely continue to push stocks up over the longer-run as Wall Street hunts for returns and yield.
With all of this in mind, let’s dive into three stocks that offer opportunities for longer-term growth, with dividend yields that more than double the 10-year U.S. Treasury, which rests at roughly 0.70% right now…
NextEra Energy Partners, LP NEP
NextEra Energy Partners is a limited partnership formed by energy giant NextEra Energy NEE, which itself offers a 2% dividend yield. NEP owns interests in wind and solar projects in the U.S., and also has a foothold in the natural gas market. All three areas will remain vital as the U.S. moves away from coal.
For instance, the U.S. Energy Information Administration reported that renewables accounted for 17.5% of electricity generation in the U.S. last year, with natural gas leading the way at 38%. The EIA projects that renewables will account for 38% by 2050, with most of that expansion coming from wind and solar, while natural gas is expected to hold steady.
Zacks estimates call for NEP’s fiscal 2020 revenue to jump 46% to $1.25 billion, with FY21 expected to come in 19% higher. Meanwhile, its adjusted loss is expected to improve slightly this year at -$1.42 a share, with FY21’s figure then projected to soar all the way to +$1.86 per share. NEP earns a Zacks Rank #3 (Hold) at the moment, alongside “B” grades for Growth and Momentum in our Style Scores system.
NEP shares have climbed 120% over the last five years to crush the Alternative Energy market and the S&P 500’s 75%. The stock is also up 80% in the last six months, but it has cooled off recently, down 9% in the last month, which might create a more enticing buying opportunity. NEP also trades at a discount to the S&P 500 and it has consistently raised its quarterly dividend. And NEP’s 3.82% dividend yield blows away the S&P 500 average of 1.69%.
Broadcom’s semiconductor offerings are utilized within smartphones, data centers, networking equipment, and elsewhere. AVGO, which boasts customers such as Apple AAPL, has expanded its reach into infrastructure software solutions through acquisitions, which includes its $19 billion purchase of CA Technologies in November 2018.
The firm beat our Q3 FY20 estimates in early September. “Our outlook for the fourth quarter reflects a strong anticipated ramp in wireless, as well as the continuing surge in demand for networking from cloud and telecom customers, more than offsetting expected softness in enterprise,” CEO Hock Tan said.
AVGO shares have jumped up 16% in 2020 and 90% since the market’s lows, which is part of a much longer run that’s seen it easily outclimbed the tech industry over the last five years. And AVGO shares haven’t been dumped as part of the recent selloff. On top of that, Broadcom raised its dividend payment by 23% this year, with its current yield resting at 3.55% to crush Intel’s INTC 2.62% and other large-cap tech names.
AVGO is a Zacks Rank #3 (Hold) right now that is projected to see its FY20 earnings jump 3.6% on 5% higher revenue. Peeking ahead, Broadcom’s adjusted FY21 EPS figure is expected to climb 15% higher on over 9% better revenue. Broadcom is also part of a highly-ranked Zacks industry and it earns “A” grades for Growth and Momentum in our Style Scores system.
Lockheed Martin LMT
Lockheed is one of the world’s largest defense contractors and it’s ready to benefit from continued Pentagon spending for years to come. LMT topped Q2 estimates in July and raised guidance amid all the uncertainty. The global defense contractor brought in $2.2 billion in cash from operations and grabbed roughly $22 billion in new orders to lift its backlog to a record of over $150 billion.
Lockheed’s new CEO James Taiclet also touched on how it could expand its role in the future of technology, with military jets and vehicles set to become more autonomous. The F-35 maker is prepared to venture into the 5G world in what Taiclet dubbed 5G.Mil. LMT shares have moved sideways since its release and are practically flat over the last 12 months, as investors perhaps wait to see how the 2020 election pans out. Still, Lockheed has topped the market and its industry—weighed down by Boeing’s BA setbacks—over the last five years
Despite the outperformance, Lockheed trades at a big discount against its industry and its shares rest about 10% off its 52-week highs right now. This could give LMT plenty of space to climb out of its current holding pattern. Lockheed is currently a Zacks Rank #3 (Hold) with a 2.43% dividend yield that tops Northrop Grumman and the 30-year U.S. Treasury’s 1.43%.
LMT’s revenue is projected to climb 8.3% in FY20 and another 5.2% in FY21, which would compare favorably to its 2018 and 2017 top-line expansion. Meanwhile, its adjusted earnings are projected to surge 10% and 11.2%, respectively over this same stretch. LMT also earns an overall “B” VGM score and it’s less impacted by near-term economic concerns.
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The Boeing Company (BA): Free Stock Analysis Report
Intel Corporation (INTC): Free Stock Analysis Report
Apple Inc. (AAPL): Free Stock Analysis Report
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NextEra Energy, Inc. (NEE): Free Stock Analysis Report
Broadcom Inc. (AVGO): Free Stock Analysis Report
NextEra Energy Partners, LP (NEP): Free Stock Analysis Report
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