3 Great Stocks for Retiring Boomers
08/24/2011 8:30 am EST
There's a lot of talk starting about a double dip hitting the US economy but there are ways to hedge against it and still get some solid total returns say Richard Band of Profitable Investing.
I have concerns about 2012, when the demographic Gray Wave will begin swelling to tsunami proportions.
Retirees tend, on balance, to take money out of the stock market. But I think there's still time to make generous profits with safe, strong, entrenched franchises like these:
Berkshire Hathaway (BRK.B)
Last month, I gave you my estimate of Berkshire's intrinsic value, $110 per Class B share. Anytime you can buy Warren Buffett's expertise at a 30% discount, you should. However, I'm also intrigued by what might happen to Berkshire after Buffett (who turns 81 on August 30) is gone.
Quite possibly, new management would start paying a dividend or-even more radically-might break the company into two pieces, an operating conglomerate and a passive investment fund. Either or both of these moves could close the discount rather quickly.
Most bank stocks don't interest me right now, but JPM is a happy exception. Earnings for 2011 will likely set an all-time high, topping last year's figure by at least 20%.
Not too shabby for one of the marquee players in an industry many investors long ago gave up for dead!
JPM is also making a concerted effort to return cash to shareholders. In March, the bank raised its dividend fivefold, and announced a $15 billion stock-buyback program.
At a current yield of 2.5%, the shares already boast a fatter dividend than the typical large-cap stock-and I expect another sizable increase in late 2011 or early 2012. Assuming a modest P/E of just ten, the stock could deliver a 30% or greater total return within a year.
Next to gold, oil is one of the world's most reliable inflation hedges-a scarce tangible asset, and an essential raw material to boot.
If you believe, as I do, that all the funny money sloshing around will eventually trigger a surge in retail prices, you need to own some oil wells. And the best way to do it is with a dirt-cheap stock like TOT.
The world's fifth-largest oil company by market value, Paris-based Total is trading at less than seven times estimated 2011 earnings, versus an average multiple of 9.5 from 2003 to 2007. Thus, if the stock were merely to return to its former average valuation, you would pocket a gain of 35% or more.
In addition, TOT pays a dividend of nearly 6%, one of the richest yields among the oil majors. Starting in September, the company is switching to a quarterly (rather than semiannual) dividend schedule-an extra attraction for retirees and other income investors.