Moody's: Safety and Sure

10/13/2016 7:00 am EST


Stephen Leeb

Founder and Research Chairman, Leeb Group

Of course, there's no free lunch, high free cash flow yield (FCFY) tilts the balance in your favor in a big way, asserts Stephen Leeb, editor of The Complete Investor.

Stocks with high FCFY offer both safety and potentially strong gains, the holy grail of investing. Moody’s (MCO) is a stock for the truly risk averse.

While its upside is only slightly greater than the downside, the very limited risk, a yield better than a CD, dividend growth above 20 percent over the past five years, and consistent share repurchases make it a top safety-first choice.

The low risk goes along with the company’s business, assessing and controlling risks. Moody’s is a dominant worldwide player in rating debt issues of corporations and governments, both local and central.

It is also the leader in the area of structured finance, referring to products like asset-backed securities and collateralized debt obligations designed to spread risk and increase liquidity throughout the economy.

Through its analytics division, Moody’s also offers research and data analysis aimed at reducing risk: more than 80 percent of the world’s largest banks are clients.

Because debt issuance, especially in Europe, has been slow, the company’s profits have stagnated recently. But a growing world means a growing need for debt and for ways of assessing and minimizing risk.

We expect Moody’s growth to remain in the mid to high single digits for the next year or two and then, as many companies refinance their debt, accelerate to the low double digits.

This safe and sure stock should continue to provide above-average returns for the foreseeable future.

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