Buying and holding stocks is arguably the best way to consistently create wealth over the long term. But considering the S&P 500 has historically averaged a roughly 10% annual return, beating the broader market's returns by purchasing individual stocks is easier said than done.
To that end, we asked three top Motley Fool investors to each discuss a stock that smart investors simply can't get enough of. Read on to learn why they chose Retail Opportunity Investments (NASDAQ: ROIC), Garmin (NASDAQ: GRMN), and General Motors (NYSE: GM).
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A smarter retail play
Steve Symington (Retail Opportunity Investments): In today's age of digital shopping, it might seem counterintuitive for smart investors to love a stock that relies on the survival of brick-and-mortar retail. But that's exactly the case with Retail Opportunity Investments Corp (NASDAQ: ROIC).
More specifically, Retail Opportunity Investments is a real estate investment trust (REIT) that focuses on buying and revitalizing necessity-based retail properties in mid- to high-income areas. This most often means its various retail properties are anchored by a popular grocery chain, which helps ensure a steady flow of traffic and, in turn, attracts other steady, reliable tenants.
Retail Opportunity Investments' most recent quarterly report was a testament to that end. The company's 97.3% portfolio lease rate last quarter extended a more than three-year streak of at least 97% for the metric. Same-space comparable base rents rose 15.1% and 12% on 43 new leases and 69 renewed leases, respectively. And so far this year, Retail Opportunity Investments has secured nearly $300 million in new shopping-center acquisitions, including two properties purchased for just over $80 million last quarter.
What's more, as a REIT, Retail Opportunity Investments must return at least 90% of its net income to shareholders in the form of dividends, which means a healthy, growing dividend that yields around 3.8% annually at today's prices. As such, I think years of market-beating gains are in store for shareholders who are willing to buy now, reinvest that dividend, and watch Retail Opportunity Investments continue to grow its property portfolio.
Navigate to a 4% yield
Demitri Kalogeropoulos (Garmin): Many investors reflexively dumped GPS device specialist Garmin as it became clear that its automotive-navigation products were being disrupted by surging demand for smartphones. But Garmin is demonstrating that its overall business can handle that knock. In fact, growth in its fitness, hiking, and sports devices helped total revenue climb by 7% last year. Operating income expanded at an even faster pace, up 14% to $624 million.
That financial strength has given Garmin plenty of resources to invest toward future growth. It is now dedicating almost 16% of sales toward research and development, compared to less than 14% in 2014. As a result, many of its products are finding healthy demand in a crowded marketplace. The Fenix watch franchise, for example, helped its outdoor division log a 46% spike in the most recent quarter.
Garmin is far from a perfect income investment. Executives are targeting only minor sales growth this year. The company isn't in the habit of routinely boosting its dividend each year, either. The payout didn't budge in 2012 and held steady in 2015, as well.
Yet in exchange for those drawbacks, smart income investors get a solidly profitable business and a stock that's yielding almost twice the broader market average.
Survive the cycle
Daniel Miller (General Motors): It might sound crazy to hear that General Motors is a high-yield stock that smart investors can't get enough of right when U.S. new-vehicle sales are plateauing. But investors who can hold long-term over a full cycle or two have an opportunity to own shares of the healthiest GM in decades, with a cheap price-to-earnings multiple of 6 and a dividend yield of 4%. At least one really smart investor agrees: David Einhorn's fund, Greenlight Capital, owns almost 55 million GM shares, which represents almost one-third of his fund portfolio at the end of the second quarter.
Smart investors are able to grasp that the General Motors of today is far from the General Motors a decade ago -- the latter was filled with arrogance and shortsighted strategies that left it on the hook for billions in losses when the recession hit. That mindset is gone, and GM is now prepared for the future, with investments in Lyft for learning about new revenue streams, the creation of the Maven brand to expand its smart mobility and ridesharing projects, and acquisitions such as Cruise Automation to develop driverless vehicle technology.
Sure, while new-vehicle sales are peaking in the U.S., another door is opening overseas. General Motors is thriving in China at the moment, recently delivering an August record 328,425 vehicles there. Demand for its Cadillac luxury brand is soaring in China, with sales up 51% compared to the prior year. Sales in China are far from being as profitable as in the U.S., but as the Chinese middle class expands, GM could help offset the lack of growth here with success abroad. That's the advantage of owning a true global automaker, even in a cyclical industry.
There are risks to owning GM, and the company will feel some bottom-line pain if and when sales eventually decline in the U.S., but some smart investors are certainly grabbing up its 4% dividend yield at these valuations.
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