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Discover 3 Stock Picks to Weather the Storm
Stanley Druckenmiller, the retired billionaire hedge fund manager, is known for calling the housing bubble. Before turning his hedge fund into a family office in 2010, Druckenmiller ran one of the best performing funds for three decades.
Last week, Druckenmiller likened today’s stock market to 2004, noting that the current investment environment offers a large amount of risk, versus a small amount of reward.
This time, Druckenmiller also pointed out that the amount of debt being raised in the market has ballooned. Over the last couple of years, companies have issued $1.1 trillion in debt, while the number from 2006 to 2007 was just $700 billion.
Today’s debt is also being issued at lower standards and with fewer covenants. This could eventually end badly for companies that have been leveraging up their balance sheets. Talking about leveraged companies and interest rates, Druckenmiller noted, “If interest rates go up, they’re screwed.”
But, the truth remains that no one knows when interest rates will move higher.
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We’re well into the seventh year since the Fed last raised rates, and it looked like we could finally see an increase in June. Yet, now the Fed is walking back its hint that it might increase rates over the summer. Hiring has been slowing and spending inflation remains in check.
The Fed won’t raise interest rates unless it feels the economy is on solid footing. Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said last week that the current data is “giving rise to heightened uncertainty about the track the economy is on.”
Just over a year ago, Druckenmiller was making similar comments about why the Fed has to raise interest rates now. Back then, he noted that low rates were not just “unnecessary,” but “fraught with unappreciated risks.”
Of note, Druckenmiller recently said that he has no clue when rates will go up. He noted, “My fear is that we won’t see anything for a year and a half. I have no confidence whatsoever that we’ll see a rate hike in September or December.”
With all that in mind, today I’m evaluating three companies that won’t be impacted by interest rates. These companies should continue to profit, whether interest rates remain low or go up. One important aspect of these companies is that they aren’t loaded with debt.
The Walt Disney Company (NYSE: DIS)
Disney is in the midst of a creative resurgence, which should be lifted by the upcoming “Star Wars” movie releases. Look for Disney to be able to piggyback off these movies to juice sales with related consumer products.
Its major business, media, which includes ABC and ESPN, is still doing well. In the meantime, Disney has been revamping its resorts to keep traffic coming in, as consumers have more money to spend thanks to lower gas prices. Tying it all together, also look for Disney to utilize its “Star Wars” franchise further by meshing it with park rides and characters.
On the debt side, Disney’s debt-to-equity ratio is a mere 37%. For reference, the S&P 500 has an average debt-to-equity ratio of close to 60%. The entertainment company pays a 1.1% dividend yield. And it has upped its annual dividend for four straight years, but still pays out just 23% of its earnings via dividends. For more top dividend growth stocks, just click here now.
Starbucks (NASDAQ: SBUX)
The global leader in coffee continues to find new ways to grow its top line, with the latest innovations being the rollout of food and its success with mobile payments. Starbucks has proven that it can adapt to changing trends, and it has plans to continue revamping the in-store experience.
There are also still some expansion opportunities in the U.S., primarily related to opening smaller express stores and the rollout of beverage trucks. Let’s not forget that Starbucks is still piloting a bar concept.
Starbucks touts a debt-to-equity ratio of just 35%. What’s more is that it has nearly enough cash to cover all of its debt. It pays the highest dividend yield of our three stocks at 2.7%, and it has also upped its dividend for four straight years.
TJX Companies (NYSE: TJX)
Thanks to the financial crisis and the surge in unemployment, TJX has gained a lot of customers. Sales have skyrocketed from around $20 billion to close to $30 billion over the last five years. It’s a trend that could well continue thanks to the fact that many millennials are still visiting its stores, despite the fact that they have more money to spend.
The balance sheet is also strong at TJX, with a 38% debt-to-equity ratio and enough cash to cover its debt. Dividend-wise, it pays a 1.3% yield and has upped its dividend for 18 straight years. It’s also only paying 25% of its earnings out as dividends.
Even as one of the largest off-price retailers in the world, TJX still has expansion opportunities. It plans to add over 180 stores this year, which will be the highest number of stores opened in over a decade. Then, when the European market shows signs of rebounding, TJX has the opportunity to reaccelerate growth there.
TJX has also followed the likes of McDonald’s (NYSE: MCD) and Wal-Mart (NYSE: WMT) with wage increases. It plans to pay at least $9 an hour to its associates.
In the end, no one truly knows when the Fed will increase rates. Therefore, it’s best to play it safe with stocks that can thrive no matter what happens.
At High Yield Wealth, my colleagues are building a portfolio of the best and safest dividend stocks. These companies have a history of performing … even when the Fed is raising interest rates. Just click here now to claim a copy of their Dividend Calendar, with details on the best dividend stocks to buy today.