Investing is a constant balance between potential risks and rewards. In general, stocks with the greatest growth potential also face the greatest risks, while those that seek a more certain future are often priced to already reflect the hope of that future.
This often makes it challenging to find stocks that are worth enough to become the core of your portfolio. From time to time, however, the market presents opportunities that have the right mix of growth prospects and reasonable values to be worth a substantial investment. With that balance in mind, here are three actions to consider building your portfolio.
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Imagine life without the services of this company
Canadian Pipeline Giant Enbridge (NYSE: ENB) operates the largest oil and liquid pipeline system in the world, as well as a huge natural gas distribution system. Oil and natural gas are essential for power generation, manufacturing and transportation: basically, much of what makes modern life comfortable. Moving these resources from where they are found to where they are processed and used is how Enbridge makes its money, and this makes it critical to broad ranges of the economy.
In addition to being so essential, Enbridge also benefits from being involved in an industry that few people want in its neighborhood. This opposition makes it more difficult and more expensive to build a new pipeline capacity, which provides an incredible competitive advantage for existing large players.
This combination results in a business that generated approximately $ 9.5 billion in operating cash flows in the last four quarters reported. This cash flow easily covered the approximately $ 6.8 billion in dividends it distributed to shareholders, although it still left a generous amount to cover maintenance and expansion. With a market capitalization of around US $ 66 billion, it is traded at about seven times the operating cash flow, which makes it reasonably priced for a cash-generating machine.
Note that, since Enbridge is a Canadian company, US-based investors will see some fluctuation in their quarterly dividends due to exchange rates. In addition, American investors who hold Enbridge outside their retirement accounts will face an automatic withholding tax on these dividends. Still, with a yield of around 8% (and a dividend that has recently been increased), it is a power worthy of consideration.
A mini economy on its own
Insurance giant Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) it is perhaps best known for being the vehicle by which Warren Buffett accumulated his billions. Under his guidance, the company went from being a struggling textile industry to becoming a miniature economy on its own.
In addition to its insurance business, Berkshire Hathaway is the total owner of the real estate, energy, railroad, food, clothing, furniture and jewelry businesses. And it is a significant shareholder in several large financial and technology companies. This wide diversification helps make Berkshire Hathaway an incredibly resilient company.
Add to that your conservative financial management, with more than $ 140 billion in cash and US Treasury bills on your balance sheet, and you will have one of the most solid companies in the world. Trading at about 1.3 times its book value, investors are paying a reasonable price for investing in a business that will certainly last well beyond Buffett’s management. Although Berkshire Hathaway does not currently pay dividends, it is a solid company that deserves consideration as part of the core of a portfolio.
You (and your pets) have to eat, right?
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JM Smucker (NYSE: SJM) it may be famous for its homonymous jellies and jellies, but the food titan has grown beyond that core to become a powerhouse in coffee, peanut butter, snacks and pet food. What happens with Smucker’s food business is that, while it may not be the fastest growing, it is quite resilient to the recession.
If times get tough, you’re more likely to focus on the basics, like home-cooked meals and your family, than to spend your money abundantly. And one of the biggest positive surprises of the COVID-19 economy was the increase in the adoption of pets during the blocks, a trend that bodes well for Smucker’s brands, like Meow Mix and Kibbles’ N Bits.
Although investors should not expect Smucker’s rapid growth, its shares are quoted at around 15 times earnings, with yield slightly better than 3%. This provides shareholders with a reasonable combination of revenue and value. When associated with a business that is expected to survive almost all economic circumstances, it makes it worthwhile to consider Smucker as an essential part of an investor’s portfolio.
Solid businesses make solid investments
Although Enbridge, Berkshire Hathaway and JM Smucker operate widely across different major lines of business, they are all solid businesses built to last. This makes them valuable as potential essential parts of a portfolio for investors looking for business sustainability. The market offers no guarantees, but in today’s crazy world, you could do worse than these three if you’re looking for long-term prospects and the ability to sleep at night as a shareholder.