Before the holidays kick off, we wanted to take a look at three stocks that have stood out above the chaos of the markets this year.
These stocks have all remained stable since January and have not fallen prey to the crazy volatility that so many other stocks have endured.
This is not a fluke. These companies have the potential to provide long-term steady growth that can add extra cashflow to your bank account for years to come.
#1: The Charles Schwab Corp. (SCHW)
Did you know that your broker earns more from you than just commissions? Although they may not always be open about the extra revenue streams they make from you, most of them are tied to interest rates.
Rates rising positively impact net margins and drive profits higher. Brokerages like Robinhood can continue to be in business despite charging no commissions because they receive payment for order flow, margin interest, and share lending.
If you have a margin account your broker can “borrow”, or lend, your shares to short-sellers. You don't have to pay them anything, but they will charge you interest for the margin the short-seller uses to keep their position. Brokers have a greater margin if rates rise.
All those income strategies can be bad for brokers' customers but they can be good for broker shareholders. And we like Schwab in that sector. Although it may seem like a dog right this moment, that is normal for bear market.
If interest rates stay high and market conditions stabilize (or dare we say, improve?), then SCHW should see a big move higher. Schwab has been gaining new customers through acquisitions of other banks, which allows them to increase their profits once the market settles and trading balances rise again.
#2: Starbucks Corp. (SBUX)
Inflation can affect retail services stocks, but there are strategies that some companies can use to address them.
Starbucks, for example, deals with inflation-deflation cycles in their raw materials (coffee beans). Coffee prices rose 100% from 2020 to the end of 2021, while SBUX shares soared 89%.
SBUX has to manage general inflation as well, which is more difficult than rising coffee prices. The point is that SBUX is already very good at adjusting to keep prices stable. Therefore we expect SBUX will remain stable and maybe even rally in short-term, while consumer spending stays strong.
#3: Waste Management Inc. (WM)
In volatile markets, it is often sensible to invest in defensive dividend-paying stocks. This is still true right now even though traditional dividend strategies aren't working quite as well as they normally do. Dividends are worth less when interest rates rise because the present value of those income streams is lower.
But if a company holds a near-monopoly on their customers, has positive margin trends, and has historically raised its dividend above inflation rates, then the old rules still apply even in an inflationary market. Waste Management is exactly that type of company.
WM's initiatives in capturing energy and byproducts from landfills and trash collection are two examples of the company's efforts to increase cash flow to maintain its high dividend payout ratio and ahead of inflation. We expect value investors to start investing in shares of the company as the dividend stock pool shrinks.
It's a crazy time of year, and any downtime that we manage to get should be used to reflect.
Although it's been a difficult year, we believe the three stocks we have shown you today can make you good money in 2023 and beyond.