We Fools believe that investors of all ages can benefit from owning individual stocks, so we asked a team of contributors to highlight a stock that they believe is a solid choice for someone in or near retirement. Read on to see what they had to say.
A technology powerhouse
Todd Campbell: Microsoft (NASDAQ:MSFT) isn’t the same stodgy PC company that it was a few years ago, and that’s great news for investors. The company is pushing into cloud-based software solutions, a strategy that’s likely to keep generating substantial cash flow for investor-friendly growth and dividend payments.
In Microsoft’s fiscal fourth quarter, sales in its productivity and business processes segment increased 8% in constant currency to $7 billion, and intelligent cloud segment sales increased 10% in constant currency to $6.7 billion. Growth in those businesses allowed Microsoft to deliver year-over-year constant currency revenue growth of 5% in the quarter.
Importantly, Microsoft doesn’t think it’s anywhere near topping out in the cloud. The company believes its commercial cloud revenue can grow from an annualized $12 billion clip today to $20 billion in 2018.
One of Microsoft’s biggest successes is Office 365, its online software productivity suite. Commercial Office 365 revenue was up 54% year over year last quarter. The company is also notching rapid growth from Azure, its app building and management product. Azure sales more than doubled from a year ago last quarter.
Future revenue should benefit from ongoing adoption of Xbox Live, a captive Xbox ecosystem, and integrating search into Windows 10, Xbox, and Surface laptops. Last quarter, Xbox live membership grew 33% from a year ago, and search revenue rose 16% year over year.
Microsoft also offers investors a bulletproof balance sheet that sports more than $110 billion in cash and short-term investments. Recently, management announced a $40 billion buyback and an 8% increase to its dividend payout. The buyback should help Microsoft grow earnings faster than sales, and the dividend boost means shares are yielding 2.7%. Given Microsoft’s top-tier status and these catalysts, it’s one of my favorites stocks to buy right now.
This retailer has the wind at its back
Brian Feroldi: With each passing year, more baby boomers reach retirement. This demographic shift should ensure that the demand for high-quality healthcare remains strong for years to come, and my favorite way to play the trend is CVS Health (NYSE:CVS).
You’re probably familiar with the company’s nationwide chain of retail pharmacy stores, but did you know that it also owns the second-largest pharmacy benefits management business in the country? This business segment helps other organizations that provide healthcare — think governments, unions, and employers — to keep their prescription-drug costs in check by outsourcing the plan management to CVS. Since CVS has decades of pharmacy experience and substantial buying power, it can negotiate discounts from drug manufacturers. It then passes those savings along to members in exchange for a modest fee. This win-win relationship keeps the company’s retention rate high, which should help drive revenue and profit growth for years to come.