Login | June 03, 2020

The best stock?

Ask the Fool

Published: October 8, 2019

Q: What's the best all-around stock? -- L.D., online

A: There's no single perfect stock, and if you're going to invest in individual stocks, you'll need to invest in more than one, anyway. Otherwise, you'll have too many eggs in one basket -- and even the sturdiest baskets can tip over. Remember that it used to be unthinkable that companies such as Sears, General Motors, Eastman Kodak and Texaco would ever go bankrupt.

That said, many companies make better investments than others, and blue chips in particular are well worth considering. A "blue chip" company is one that's established and relatively stable, with a solid track record -- and, very often, a dividend that's increased regularly. Examples include Berkshire Hathaway, Johnson & Johnson, Microsoft, Nike, Walt Disney, Starbucks and the Home Depot.

There's a strong argument that the best all-around investment for long-term investors is simply a low-fee broad-market index fund, as it will spread your money across gobs of blue chips and other stocks.

Q: If I invest in stocks via dividend reinvestment plans ("Drips") or direct investing plans, do I need to keep all the paperwork? -- S.W., Bremerton, Washington

A: Yup. Those plans can be great, letting you bypass brokerages and invest in companies directly, but you'll need to keep good records -- of your purchases, sales and reinvested dividends -- for tax purposes.

It can be worth it, though: You can avoid brokerage commission costs when buying shares, invest small amounts at a time and have your dividends reinvested in additional stock; over time, that can turn into large sums.

Learn more about these investment plans at DirectInvesting.com, and read our "Complete Guide to Drip Investing" by searching for the term "Motley Fool drips" on Google.

Fool's School

When To Consult a Professional

If your lawn needs mowing or a skirt needs hemming, you might tackle that yourself. But when you need a tooth removed or a new alternator installed, you probably go straight to a professional. When it comes to your finances, it's smart to consult a professional:

-- If you're buying or selling a home, professional guidance might help you save tens of thousands of dollars. For example, some tax-smart moves can shield part of any gain from taxation.

-- If you're getting married, you have many issues to consider, such as how to manage your separate and/or joint finances. You may come out ahead by filing your taxes jointly, or adding one spouse to the other's health insurance plan.

-- If you're getting divorced, there may be some smart financial moves to make now or later. An adviser can also answer questions such as whether you can still file taxes jointly this year.

-- If you're having children, you should look into what kinds of savings accounts to set up for their future needs. Getting life insurance is smart, too.

-- If you're saving for college, there are a bunch of programs and savings tools you'll want to know about.

-- If you're considering buying a complex financial product, such as disability insurance, long-term care insurance or an annuity, an adviser can lay out your options and help you decide what to do.

-- If you don't have a retirement plan, you should -- even if you're still young -- and an adviser can help you with that. The earlier you start, the easier it will be to build a big nest egg.

Financial advisers can be extremely helpful in many other situations, such as if you need an estate plan, or you inherit money. Ask around for recommendations from family or friends, or find a fee-only financial adviser at NAPFA.org.

My Dumbest Investment

Double Blunder

My dumbest investment was investing in Helios and Matheson Analytics, the company behind MoviePass.

Another dumb move was buying Novavax at around $2.30 per share (before a reverse split that boosted its price) and then doubling down after its failed clinical trial. -- P.D., online

The Fool responds: Ouch. MoviePass presented a problematic business model, essentially giving away more than it took in when it offered subscribers the ability to see unlimited movies in theaters for $9.95 per month. The company, meanwhile, was paying retail prices for those seats its subscribers were filling. The nail in the coffin was when movie theater owners such as AMC launched rival, and more profitable, services.

Vaccine developer Novavax is another story, and a volatile one. Your first red flag was its share price: Stocks trading for less than about $5 per share are penny stocks. They may look like bargains, but they're often on shaky ground, more likely to head south than north. Reverse splits are another red flag, as their primary purpose is to increase a stock's price (while reducing the number of shares outstanding, proportionately), and they're typically executed by struggling companies.

In Novavax's case, its shares had traded below $1 per share for 30 consecutive days, and the Nasdaq Stock Market warned that it would be de-listed if it didn't get its price back up above $1. The reverse split achieved that. (The stock was recently trading near $6.75.)

Foolish Trivia

Name That Company

I trace my roots back to the 1963 opening of my first store, in Lowell, Massachusetts. I grew to more locations and added pharmacy departments in 1967. I bought more than 2,500 stores from Revco in 1997 and acquired 1,268 Eckerd stores in 2004. I debuted the first fully integrated online pharmacy in 1999. Today, based in Woonsocket, Rhode Island, I'm the product of a merger with Caremark Rx. I employ close to 300,000 people in the U.S. and beyond and raked in nearly $200 billion in 2018. I stopped selling tobacco products in 2014. Who am I?

Last Week's Trivia Answer

I trace my roots back to an eatery opened in Quincy, Massachusetts, in 1950. My first franchise opened in 1955, and today, based in Canton, Massachusetts, I boast more than 12,900 locations in 42 countries -- and more than 21,000 points of distribution in more than 60 countries. I serve around 2 billion cups of coffee annually. Not everyone knows that I also own the Baskin-Robbins brand -- the world's largest ice cream specialty chain, with more than 8,000 locations. Early in the morning, Fred the Baker laments that it's time to make the donuts. Who am I? (Answer: Dunkin Brands)

The Motley Fool Take

Infrastructure Investing

Brookfield Infrastructure Partners (NYSE: BIP), as its name implies, focuses on infrastructure assets. These assets include cell towers, electricity transmission lines, natural gas pipelines, ports, railroads and toll roads -- the kinds of properties that provide steady revenue month in and month out. Brookfield uses about 65% of that income to pay an above-average dividend that recently yielded 4.2%. (Brookfield is also structured as a limited partnership, which means its tax treatment is different from and a bit more complicated than common stocks.)

In the decade or so since its formation, Brookfield has grown its cash flow per share at an 18% compound annual rate, enabling it to increase its dividend at an 11% yearly pace over that period. Brookfield has enough expansion projects and other growth initiatives under way to increase its payout by 5% to 9% annually over the next five years, making it an excellent option for yield-seeking investors.

That's because Brookfield's businesses deliver consistent and predictable income in just about any economic environment. They're critical to modern life, and are going to be even more in demand as the global urban middle class expands.

Brookfield's shares may not be screaming bargains right now, but they seem priced to reward patient long-term investors. (The Motley Fool has recommended Brookfield Infrastructure Partners.)