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This exceptionally odd behavior from Berkshire Hathaway leads us to one logical conclusion.

This has been a strange year for the investment community. That includes one of the most successful investors of all-time: Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) CEO Warren Buffett.

Over the last 55 years, Warren Buffett’s long-term, emotion-averse approach to investing has proved quite lucrative for the company’s shareholders. The 20.3% compound annual return for Berkshire’s shares more than doubles to 10% compound annual return, including dividends paid, for the broad-based S&P 500. The result is a 55-year outperformance for Buffett’s company that surpassed 2,700,000%, as of Dec. 31, 2019.

Many investors look for Buffett and his investing team to stabilize an otherwise news-and-emotion-driven market. But the Berkshire Hathaway of 2020 looks nothing like the Buffett portfolio of old.

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Buffett has been a big-time seller in 2020

Following the closing bell on Monday, Nov. 16, Berkshire Hathaway filed its Form 13F with the Securities and Exchange Commission (SEC). A 13F is a required quarterly filing for businesses and investors with over $100 million in assets under management, and it provides an under-the-hood look at what big-name money managers were holding in their portfolios as of the end of the most recent quarter (in this case, Sept. 30, 2020).

Historically, a Berkshire Hathaway 13F consists of a small number of new positions, additions, reductions, or complete exits. This year, however, the movement within Buffett’s portfolio has been off the rails. Since 2020 began, 35 stocks in Berkshire’s investment portfolio have been reduced or completely sold off.

This includes 10 stocks that were completely removed from Berkshire Hathaway’s portfolio in the past nine months:

  • American Airlines Group
  • Southwest Airlines
  • Delta Air Lines
  • United Airlines
  • Occidental Petroleum
  • Phillips 66
  • Goldman Sachs
  • Travelers Cos.
  • Restaurant Brands International
  • Costco Wholesale

The first nine stocks on this list were removed in the first half of the year, with longtime holding Costco the lone exit during the third quarter.

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Meanwhile, 25 additional stock have been reduced to a varied degree at some point in 2020. Keep in mind that a very small number of these companies were added to following a first- or second-quarter reduction. Take a deep breath for this (you’ll need it):

  • Apple
  • Charter Communications
  • Barrick Gold (NYSE:GOLD)
  • M&T Bank
  • Wells Fargo
  • PNC Financial Services
  • JPMorgan Chase
  • Mastercard
  • Visa
  • Bank of NY Mellon
  • Synchrony Financial
  • U.S. Bancorp
  • Sirius XM
  • Amazon
  • VeriSign
  • General Motors
  • Biogen
  • DaVita
  • Teva Pharmaceutical Industries
  • Axalta Coating Systems
  • Suncor Energy
  • Liberty Latin America
  • Liberty Global (Class A)
  • Liberty SiriusXM Group (Class A)
  • Liberty SiriusXM Group (Class C)

In the third quarter, Apple and Barrick Gold joined the list, which is especially surprising for the latter, as it was first added in the sequential second quarter.

BERKSHIRE HATHAWAY CEO, WARREN BUFFETT. IMAGE SOURCE: THE MOTLEY FOOL.

This is Combs’ and Weschler’s portfolio now

If your initial thought is, “What the heck is going on?” let me assure you that you aren’t alone. This is exceptionally odd behavior for Berkshire Hathaway that has only one logical answer: Buffett continues to cede day-to-day control of investing activity to his investing lieutenants, Todd Combs and Ted Weschler.

Even if Warren Buffett never admitted that this is what’s happening, there are numerous telltale signs that suggest Combs and Weschler are now running the show.

For example, Buffett has been very clear in previous interviews that Berkshire Hathaway isn’t in the business of slow-stepping its selling activity. If Buffett is no longer a believer in a company, it tends to be disposed of within a few quarters. But throughout 2020, we’ve watched as Berkshire’s 13Fs show modest selling activity (often below 9% of a stake) in well over a dozen instances. That’s not how Buffett reduces risk or exits a position.

Another telltale sign is the more than 40% reduction in the Barrick Gold stake. It was already abundantly evident that the purchase of a gold stock in the second quarter wasn’t Buffett’s doing, especially given his distaste for the lustrous yellow metal. Buffett has always been critical of gold’s lack of utility, which made the Barrick Gold buy a clear Combs or Weschler selection. But the giveaway is that Buffett wouldn’t turn around and sell more than 40% of a stake just a couple of months after taking it.

IMAGE SOURCE: GETTY IMAGES.

Yet another sign that Buffett is giving up the reins is Berkshire’s new positions in four Big Pharma stocks. Warren Buffett has been avoiding drug stocks for the past decade, primarily because he doesn’t have the time or desire to follow clinical trials. Those third-quarter additions can, without question, be attributed to Combs and Weschler.

There was also the September pre-initial-public-offering purchase of more than 6.1 million shares of cloud data warehouse company Snowflake (NYSE:SNOW). I’d mortgage my house on the idea that Buffett can’t explain Snowflake’s operating model.

Buffett may well be giving his nod of approval, allowing Combs and Weschler to spend a certain amount of capital on investments, but it’s become brutally evident from the past three 13F filings that Warren Buffett’s investment portfolio really isn’t about Buffett anymore.

Author: Sean Williams

Source: Fool: No Joke: Buffett Has Now Sold 35 Stocks in 9 Months

These companies can double their sales many times over.

This year has tested the resolve of investors like few before it. The unprecedented nature of the coronavirus disease 2019 (COVID-19) pandemic led to historic levels of uncertainty during the first quarter and ultimately wiped away more than a third of the S&P 500’s value in under five weeks.

Thankfully, volatility has a way of opening doors for long-term investors. Since bull market rallies inevitably put every stock market crash or correction in the rearview mirror, notable dips in equities are opportunities to put money to work. Investors who bought a basket of innovative companies during the February/March meltdown are likely up on those positions today.

However, volatility doesn’t always bring out the best in investors. Online investing app Robinhood, which is known for offering commission-free trades and gifting free shares of stock to new members, has gained millions of new users in 2020. Unfortunately, many of these millennial and novice “investors” have chosen to chase Wall Street’s flavor of the week or downright awful companies. In other words, most Robinhood investors lack the long-term mindset needed to increase their odds of building significant wealth.

The good news is that there’s a solution. Robinhood investors are attracted to volatility. Investing in some of the fastest-growing stocks could satiate that desire, while also giving them a chance to build significant wealth over the long term.

Here are three of the fastest-growing stocks Robinhood investors should consider buying now.

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Datadog

The coronavirus pandemic has transformed the traditional office environment as we knew it. With businesses pushing online and into the cloud at an accelerated rate due to COVID-19, software-as-a-service (SaaS) stock Datadog’s (NASDAQ:DDOG) solutions will be in high demand. Datadog’s cloud-based SaaS solutions help businesses monitor application performance, better understand user behaviors, and improve knowledge of key business metrics.

Datadog, which is set to release its third-quarter operating results after the closing bell later today (Nov. 10), recorded 68% sales growth in the second quarter. The number of customers generating over $100,000 in annual recurring revenue jumped to 1,015 from 594 in the year-ago period.

Datadog delivered exceptional growth during the weakest quarter for the U.S. economy in decades. It’s also seeing its existing clients spend more as they grow. Datadog’s solutions are built to expand with its clients, which should yield improved margins over time.

Unlike a number of other fast-growing cloud-based SaaS stocks, Datadog has also pushed to recurring profitability. Even with the company making acquisitions and spending freely on innovation, there’s no concern about full-year losses.

Between 2019 and 2023, Wall Street expects Datadog to grow sales from $363 million to about $1.4 billion, which works out to a compound annual growth rate of 40% a year. That’s the type of growth Robinhood investors should chase.

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Innovative Industrial Properties

Marijuana stocks have been the talk of Wall Street over the past week, primarily because of the cannabis industry’s green sweep post-Election Day. Unfortunately, Robinhood investors aren’t allowed to buy into many of the fastest-growing names in the industry because the Robinhood platform doesn’t let members buy over-the-counter-listed stocks. Thankfully, there is still one high-growth pot stock that offers exceptional growth prospects: Innovative Industrial Properties (NYSE:IIPR).

Innovative Industrial Properties, or IIP, is a cannabis-focused real estate investment trust (REIT). It acquires medical marijuana cultivation and processing sites and then leases these assets out for long periods, usually 10 to 20 years. IIP makes its living by collecting rental income, acquiring new assets, and passing along annual rental increases to its tenants.

Innovative Industrial’s acquisitions are primarily driving its growth. Having begun 2019 with just 11 properties owned, IIP ended the previous week with 63 properties spanning 5 million square feet across 16 states. The best part is that more than 99% of this square footage is currently leased, with a weighted-average remaining lease length of 16.2 years. Investors can expect highly transparent and predictable cash flow for a long time to come.

IIP also benefits from its sale-leaseback arrangements. With access to traditional banking services limited for multistate operators, Innovative Industrial acquires properties from cannabis operators with cash and immediately leases these properties back to the seller. These arrangements allow IIP to acquire long-term tenants, while pot companies land much-needed cash.

Though success largely depends on IIP’s acquisition activity moving forward, Wall Street expects the company’s annual revenue to top $280 million by 2023. For context, it generated just $44.7 million in revenue in 2019.

IMAGE SOURCE: GETTY IMAGES.

Sea Limited

A final fast-growing stock that Robinhood investors can sink their teeth into is Singapore’s Sea Limited (NYSE:SE). Sea has a three-part business fully capable of delivering sustainable double-digit or triple-digit growth.

The company’s digital entertainment segment is currently responsible for most of its revenue and the bulk of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Sea is the company behind the hit mobile game Free Fire, which attracted more than 100 million peak daily users during the second quarter. More importantly, its gaming arena has nearly 500 million active users, 10% of whom are paying (up from 8.4% in Q2 2019).

However, the real excitement stems from e-commerce platform Shopee, which targets a number of Southeast Asian countries. This region’s rising middle class is quickly becoming accustomed to making purchases online. In the second quarter, gross merchandise volume bought on the Shopee platform jumped about 110% to $8 billion from the prior-year period, with gross orders jumping 150%. This segment could see lasting triple-digit growth even once an effective COVID-19 vaccine is approved.

Lastly, Sea Limited has ventured into digital financial services. At the end of June, the company had more than 15 million paying mobile wallet users. Though this segment is a relatively small revenue generator for now, it could prove quite lucrative in an underbanked region of the world.

Wall Street is looking for Sea’s sales to catapult from $2.9 billion in 2019 to $10.3 billion by 2023, which works out to a compound annual growth rate of 37.3%.

Author: Sean Williams

Source: Fool: 3 of the Fastest-Growing Stocks Robinhood Investors Should Buy

This isn’t an increase shareholders are cheering about.

Over the next decade, marijuana is projected to be one of the fastest-growing industries. We already know that tens of billions of dollars in sales are currently conducted in the global black market. If legalization slowly but surely moves these consumers to legal channels, cannabis companies shouldn’t have any trouble delivering the green to investors.

But as we’ve learned over the past few years, not all marijuana stocks are built to thrive as cannabis goes global. Canadian licensed producer Aurora Cannabis (NYSE:ACB) is a perfect example.

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Aurora Cannabis has shattered shareholders’ dreams

Aurora Cannabis is an absolute favorite among millennial investors; prior to its reverse split in May, it was the most held stock on investing platform Robinhood. The bullishness surrounding Aurora can be summed up as follows:

Top-tier production: Aurora had 15 cultivation facilities that, if fully developed, could have yielded more than 650,000 kilos of weed annually. The ability to produce so much pot made it a likely candidate for long-term domestic and international supply deals. It was also widely believed that Aurora’s large-scale output would yield some of the lowest growing costs per gram in the industry.
Unparalleled international access: Aside from being a capacity hound, Aurora had a production, export, partnership, or research presence in 24 countries outside of Canada. This includes the U.S., which Aurora entered through its purchase of cannabidiol (CBD)-based company Reliva.
Partnership appeal: In March 2019, Aurora hired billionaire activist investor Nelson Peltz as its strategic advisor. Peltz’s focus on consumer packaged food and beverage companies made him a logical liaison to broker an equity investment or partnership.

But here’s where things stand today:

Production more than halved: Over roughly the past year, Aurora Cannabis has shuttered five of its smaller cultivation facilities, sold its 1-million-square-foot Exeter greenhouse, and halted construction on two of its largest projects. Peak annual output is now probably in the 200,000 kilos to 250,000 kilos range.
International sales are virtually nonexistent: Despite Aurora’s expected reliance on foreign markets to offset supply concerns in Canada, international sales have struggled to significantly surpass $4 million Canadian a quarter.
Peltz resigns: After roughly a year and a half, Peltz recently stepped down. He failed to broker any significant or lasting deals for Aurora.

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The 11,800% gain shareholders aren’t thrilled about

Aurora Cannabis’ problems continue to mount.

Earlier this week, the company announced that it had fully completed a $250 million (that’s U.S.) at-the-market (ATM) offering first announced in April. This $250 million ATM followed a completed $400 million ATM offering. After effectively selling its common stock at whatever the current price was for Aurora’s shares, the company ended Oct. 26 with $272 million in cash and $11 million in untapped revolving credit.

More importantly, as of Oct. 26, Aurora’s share count had ballooned to 160,656,048 from approximately 115.2 million on June 30, 2020. That might not seem like a huge increase, but let me back this time frame out a bit. At the end of the company’s fiscal year on June 30, 2014, it had 16.15 million shares outstanding. That works out to 1,345,833 shares after accounting for its 1-for-12 reverse split enacted in May 2020. In a little over six years, Aurora’s outstanding share count has ballooned by more than 11,800%. I’ve previously commented that “Aurora is a serial diluter of its shareholders,” and I wasn’t exaggerating.

Having completed its $250 million ATM offering, Aurora announced a new ATM program that’ll allow the company to sell up to $500 million in shares over the next 25 months. For context, Aurora Cannabis ended Oct. 27 with a market cap of about $642 million, based on its updated outstanding share count. Another $500 million in stock issuances could balloon Aurora’s outstanding share count by another 44%. If that happens, it’ll constitute outstanding share inflation of greater than 21,000% from where it began on June 30, 2014.

Aurora’s need to quickly usher in another round of ATM offerings suggests that the company’s ongoing cash burn would quickly gobble up the remaining $272 million in cash and cash equivalents. In other words, it’s still nowhere near adjusted profitability.

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Aurora Cannabis has shown a complete disregard for its shareholders

If Aurora Cannabis has taught investors anything, it’s that cheap stocks are usually cheap for a reason. We’ve also learned that not all stocks in a high-growth industry can be winners.

Aside from continuing to dilute its shareholders at an extraordinary pace, poor decisions by management have also proved how little they care about their investors.

In fiscal 2020, Aurora Cannabis reported a CA$3.3 billion net loss, which was magnified by more than CA$2.8 billion in writedowns and impairment charges. While some of these charges were tied to the closure of the company’s smaller cultivation facilities and to layoffs, most relate to the company’s grossly overpriced acquisitions.

For example, Aurora paid a jaw-dropping CA$2.64 billion in an all-share deal to acquire licensed producer MedReleaf in 2018. The expectation when this deal closed was that MedReleaf would support 140,000 kilos of annual marijuana production. Ultimately, Aurora sold the Exeter facility (which was never retrofit for pot production) for a meager CA$8.6 million. It was expected to yield 105,000 kilos of the 140,000-kilo estimate. The smaller Markham facility (7,000 kilos a year) also got the ax. Aurora effectively paid a net of CA$2.63 billion for 28,000 kilos of annual output and a handful of proprietary brands. Decisions like this have doomed the company’s shareholders.

Management also received hefty pay raises in 2020 for meeting some of the company’s key performance indicators for the year. That’s right — as Aurora’s future remains in doubt and the company continues to sell its own stock at the detriment of shareholders to raise capital, it’s raising its executives’ pay.

Author: Sean Williams

Source: Fool: Aurora Cannabis: The 11,800% Gain No One Saw Coming

Growth? Value? There’s an attractive bargain for every investor,

It’s been a turbulent year for Wall Street, and it doesn’t appear as if stock market volatility will ebb anytime soon. Numerous records have been broken this year, including the fastest bear market decline of at least 30% for the benchmark S&P 500, as well as the quickest return to new all-time highs from a bear market bottom.

Although we’re never going to know what the stock market is going to do in the short-term, we concretely know that the broader market heads higher over the long run. That makes all sizable moves lower in the market, including the recent turbulence equities have been navigating their way through, an opportunity to buy great companies at a perceived discount.

As we barrel into November and yearn to close the curtain on 2020, I view three stocks as particularly attractive bargains. These are companies that might begin delivering immediately, but are best served as long-term holdings to grow your wealth.

Fastly

Following a 50% pullback in a matter of weeks, it’s officially time to pound the table and beat the dead horse on edge cloud computing services provider Fastly (NYSE:FSLY).

As you might recall, Fastly lowered its third-quarter revenue guidance a few weeks ago to a range of $70 million to $71 million from a previous forecast of $73.5 million to $75.5 million. With TikTok responsible for 12% of the company’s sales through the first six months of 2020, and TikTok involved in a dispute with the Trump administration stateside, ByteDance, the parent company of TikTok, significantly pared back its reliance on Fastly for content delivery and security.

While losing a big customer is never ideal, a closer inspection of Fastly’s third-quarter operating results, released last week, shows Wall Street’s concerns to be largely overblown. Even with TikTok usage declining, revenue still grew by 42% year-over-year, with Fastly picking up 96 new customers, including nine new enterprise clients, from the sequential second quarter.

What’s even more impressive is Fastly’s dollar-based net expansion rate (DBNER) expanded by 10 percentage points in Q3 2020 from the sequential quarter. I’d (wrongly) assumed that DBNER would decline given the company’s revenue revision, but that proved not to be the case. With the average enterprise customer spending $753,000 in Q3 2020, up from $716,000 in Q2 2020, it’s crystal clear that Fastly’s existing clients are boosting margins and pushing the company toward recurring profitability.

This is a company that doesn’t need TikTok to continue growing at 30% to 50% annually, and it’s on sale for the first time in months. Pound that table, high-growth investors!

IMAGE SOURCE: CVS HEALTH.

CVS Health

Don’t worry value stock seekers, I haven’t forgotten about you. If deep discounts are more your thing, pharmacy chain CVS Health (NYSE:CVS) has the tools and intangibles to make your richer in November and beyond.

CVS Health has lost more than half of its value since mid-2015 as the combination of increased online competition, weaker generic-drug pricing, and slower foot traffic tied to the coronavirus disease 2019 (COVID-19) pandemic have all exacted a toll. Yet, at roughly 8 times next years’ profit forecast from Wall Street, CVS is as cheap as it’s been in a very long time.

Though CVS Health is a brand-name stock, it does have a number of catalysts that can reignite its growth engine and make its shareholders (myself included) richer. For one, CVS plans to open approximately 1,500 HealthHUB health clinics around the country by 2021, or perhaps a tad later now that COVID-19 has disrupted things from an operational perspective. These HealthHUB’s will specifically focus on patients with chronic illnesses and aim to get these folks in touch with physicians or specialists. It’s a means of engaging with CVS’ local community and driving repeat traffic through its doors or online portal.

CVS has also separated itself from the pack through its 2018 acquisition of health-benefits provider Aetna. The deal provides substantial cost synergies, as well as gives Aetna’s millions of members an incentive to stay within the CVS Health network. Further, the inclusion of Aetna actually boosts CVS’ organic growth rate and operating margins, which are often dragged down by the slow-growing, low-margin front-end retail segment.

The icing on the cake for value investors is that CVS Health offers a safe 3.6% yield. In other words, it’s the prescription that’ll cure your portfolio’s ills.

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Freshpet

A third stock that can make you richer in November and beyond is natural and organic pet food and treats company Freshpet (NASDAQ:FRPT).

Whereas Fastly and CVS Health have fallen significantly from their respective all-time highs, Freshpet is within a stone’s throw (or should say squeaky ball’s throw) of its record-closing high. Despite being a pricey stock, this is a company that’s shown it deserves every bit of premium it’s received.

First off, consider the companion pet ownership and spending metrics behind a company like Freshpet. Data from the American Pet Products Association shows that year-over-year U.S. companion pet expenditures haven’t declined in at least a quarter of a century. In 2020, it’s estimated that $99 billion will be spent on companion animals, with $38.4 billion of this derived from food and treats. With an estimated 84.9 million U.S. households owning a pet, and nearly all of these owners viewing their companion animal as part of the family, it’s no surprise that they’ll spend big bucks to ensure their well-being.

Secondly, investors need to understand that Freshpet is to the pet industry what natural and organic food producers were in grocery stores in the mid-2000s. Pet owners are more than willing to pay higher prices if they’re getting a product that’s perceived to be more nutritious for their dog. These higher prices should translate into higher margins for Freshpet over the long run.

And finally, keep in mind that Freshpet is still in the early stages of its marketing and brand-awareness campaign. Even though it has a presence in over 22,000 retail doors (and climbing), its penetration is still relatively low. As the company picks up new customers and retains existing clients, it’s not out of the question that we see sales triple over the next four years.

Author: Sean Williams

Source: Fool: 3 Top Stocks That’ll Make You Richer in November (and Beyond)

Bargains abound for long-term investors.

Investing in 2020 should really come with an instruction manual, because we’ve seen the stock market do things that were never believed to be possible. We witnessed the CBOE Volatility Index log its highest reading in history, saw the benchmark S&P 500 lose 34% of its value in roughly a month, and got to see the widely followed index claw back all of its losses in the subsequent five-month period. Volatility is always present in the stock market, but this year has been off the scale.

However, volatility doesn’t have to be a run-and-hide event. That’s because volatility opens the door for long-term investors to buy into high-quality stocks at a discount.

Another thing volatility tends to do is highlight value stocks that are on sale. Proven businesses are often a great place to park your money when short-term emotions get the better of Wall Street. With this in mind, the following four top value stocks are on sale right now and are just begging to be bought.

AT&T

I get it — AT&T (NYSE:T) is tape-up-your-eyelids boring. But boring business models are often highly profitable, and in the case of AT&T, provide exceptional income potential above and beyond the rate of inflation.

Last week, Wall Street got a glimpse of AT&T’s third-quarter operating results, which were adversely impacted by the coronavirus disease 2019 (COVID-19) pandemic and showed the negative effects of ongoing cord-cutting from the company’s DirecTV subsidiary. But there were also numerous data points that deserve positive recognition.

For example, postpaid phone churn rate fell by 8 basis points to 0.69% from the prior-year period, with over 5 million domestic wireless net account additions during the quarter. Wireless service has become an almost basic-need for Americans, implying that recessions tend to have very little impact on AT&T’s wireless/mobility segment.

I’m also pretty impressed with the combination of HBO and HBO Max subscribers topping 38 million domestically and 57 million internationally. The domestic figure was about 2 million above AT&T’s own expectation, and it suggests that demand for streaming options, following the May launch of HBO Max, remain strong.

AT&T’s focus on selling noncore assets and reducing its debt, all while comfortably maintaining a dividend yield of more than 7%, makes it a top value stock to buy right now.

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Altria Group

Another deep-discount stock that never seems to get any love is tobacco giant Altria Group (NYSE:MO).

There’s no doubt that Altria has been facing an uphill battle against tightening tobacco regulations in the United States. As a result, the company has seen its cigarette shipment volumes falling precipitously in recent years. That’s probably not a trend we’re going to see change anytime soon. But there are a handful of catalysts investors are overlooking.

For instance, Altria has historically benefited from its exceptional pricing power. Nicotine is an addictive chemical, and Altria knows it. Being able to pass along inflation-topping price hikes on its tobacco products has been a winning strategy for years.

Altria Group also has exciting things happening beyond tobacco. It has an exclusive agreement in place to market Philip Morris International’s IQOS heated tobacco device in the United States. The plan for Altria is to introduce this device into four new markets over the next 18 months, as well as organically grow heated tobacco unit sales in existing markets where IQOS is sold in the U.S.

Also, don’t overlook the willingness of this company’s board to repurchase common stock. As a slower-growing company, Altria has often turned to pumped-up dividends and significant share buybacks to reward its shareholders. Today, investors can get a smoking-hot deal on Altria, with the company yielding an astounding 8.8% and valued at less than 9 times Wall Street’s forecast earnings for 2021.

IMAGE SOURCE: GETTY IMAGES.

Teva Pharmaceutical Industries

Value seekers would also be wise to consider digging into brand-name and generic-drug developer Teva Pharmaceutical Industries (NYSE:TEVA).

As with the other value stocks here, the reason Teva is so inexpensive (less than 4 times Wall Street’s profit forecast for 2021) is because it’s facing some near-term hurdles. Teva has been a lawsuit magnet of late, and is contending with allegations that it helped fuel the opioid crisis. The company also grossly overpaid for its Actavis acquisition and has been backpedaling because of its debt ever since.

However, Teva’s turnaround specialist CEO Kare Schultz, who was hired in 2017, has worked wonders. In three years, Schultz has Teva on track to reduce its annual operating expenses by $3 billion, as well as lower its net debt by roughly $10 billion. This has been done through a combination of asset sales, lower expenditures, and using positive operating cash flow to pay down debt. There’s still plenty of work to be done, but Schultz has moved Teva well out of danger territory.

Teva Pharmaceutical should also benefit from an aging America. As baby boomers age and brand-name drug prices soar, there’s the growing likelihood that physicians, insurers, and consumers will push for generic medications. Teva should remain one of the largest generic drugmakers in the world, and its broad portfolio should see plenty of volume in the years to come.

IMAGE SOURCE: CVS HEALTH.

CVS Health

A final top stock that’s at a bargain-basement valuation is pharmacy chain CVS Health (NYSE:CVS). Investors can scoop up shares of CVS Health for about 8 times Wall Street’s forecast earnings per share for the upcoming year.

Why so cheap? Whereas most healthcare stocks offer a basic-need good or service that protects them from being clobbered by recessions, that’s not the case for CVS Health. The COVID-19 pandemic has caused foot traffic into the company’s stores and clinics to slow, which has stymied its growth.

The good news, though, is that CVS Health has a number of catalysts that can push its valuation higher. A good example is the 2018 acquisition of health-benefits provider Aetna. The combination of these two powerhouses is expected to yield significant cost synergies, and will actually improve CVS Health’s organic growth rate. It also provides an incentive for Aetna’s millions of members to stay within the CVS Health universe of services.

Speaking of services, CVS Health has plans to open approximately 1,500 of its HealthHUB health clinics nationwide. These clinics are primarily focused on connecting chronically ill patients with physicians and specialists. More importantly, it gives CVS a way to engage at the community level and drum up business for its higher-margin pharmacy segment.

CVS Health is on sale and waiting for investors to scoop it shares up.

Author: Sean Williams

Source: Fool: 4 Top Value Stocks on Sale to Buy Right Now

Even with historically low Treasury yields, investors want little to do with equities.

It’s been a buckle-up-and-hold-on sort of year for Wall Street and retail investors. The unprecedented uncertainty created by the coronavirus disease 2019 (COVID-19) pandemic shaved 34% off of the benchmark S&P 500 (SNPINDEX:^GSPC) in a matter of just 33 calendar days during the first quarter. We also witnessed the fastest snap-back rally to new highs from a bear market low on record. All in all, we’ve crammed about a decade’s worth of volatility into a six-month window.

The scary thing is, we may soon be doing it all over again.

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This new data tells a scary tale

Aside from volatility, one thing the stock market isn’t short of these days are doomsday predictions — and you’re about to hear another one.

Previously, I’ve suggested that a stock market crash or correction was highly likely because historical data said it was. Following the previous eight bear markets, dating back to 1960, there were a grand total of 13 corrections/crashes of between 10% and 19.9% within three years of these bear market lows. This is to say that each new bull market underwent one or two sizable corrections relatively soon after bouncing off a bear market low.

However, this may not be the most damning evidence that the stock market is in trouble. The most concerning data point comes from Refinitiv Lipper, which has been reporting U.S. weekly mutual fund and exchange-traded fund (ETF) cash flows on a weekly basis for well over a decade. For the week ending Oct. 21, 2020, investors were net redeemers of fund assets (conventional funds and ETFs) to tune of $7.6 billion.

Here’s what’s concerning: This was the 11th consecutive week of fund outflows, when taken as a whole, and the 26th consecutive week for conventional fund outflows (excluding ETFs). Domestic equity funds are also riding a 19-week streak of ongoing outflows. The stock market might be near its all-time high, but this data suggests that investors aren’t exactly thrilled with the prospect of putting their money to work in equities right now.

What makes this even more worrisome is that these ongoing outflows come at a time when U.S. Treasury yields are within a stone’s throw of their record lows. Investors looking for guaranteed income are scraping by with only a 0.8% yield on the 10-year Treasury note. It’s almost certain that inflation will outpace 0.8%, on average, over the next decade, meaning T-bond buyers are going to lose real money while holding to maturity.

If investors aren’t tempted by equities with yields that are virtually nonexistent, Wall Street could be in some serious trouble.

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Don’t forget these issues, either

Keep in mind that equity fund outflows are just one of many potential problems for the stock market.

The coronavirus pandemic remains an issue in many respects. Putting aside a vaccine for a moment, there remains the possibility of additional restrictions both within and outside the United States. Ireland, for example, is imposing a six-week lockdown that requires residents to stay within three miles of their homes and restricts access to retail stores and restaurants. With each state in the U.S. managing its coronavirus response independent of the federal government, it’s not out of the question that additional restrictions could become necessary this fall or winter.

As for a COVID-19 vaccine, Wall Street appears to be expecting a miracle. I mean, why would the S&P 500 be within striking distance of a new all-time high if not for the expectation of a vaccine with exceptional efficacy? If late-stage trials fail to completely wow Wall Street, a lot of downside could await the market.

Fundamentally, I think it’d also be foolish (with a small “f'”) to overlook the strong likelihood of a rise in delinquency rates for mortgages, rent, credit cards, and personal loans in the coming months. Remember, funds from the Coronavirus Aid, Relief, and Economic Security Act served as a financial buffer for tens of millions of Americans through July. But with enhanced unemployment benefits now gone and the unemployment rate still more than double where it was prior to COVID-19, our nation’s financial institutions are bound to feel the pain.

Even election uncertainty could become a problem. Although the polls appear to be in agreement that Democratic Party challenge Joe Biden will be victorious on Nov. 3, surveys have proved wrong before. Anything but the utmost certainty when it comes to politics usually plays out poorly on Wall Street.

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Three things to do if a stock market crash does occur

Suffice it to say, a stock market crash remains a very real possibility in the near future. The question is, what should you do if one occurs?

First of all, don’t panic. Though investor emotions tend to run amuck during periods of heightened short-term volatility, downside moves in the stock market are actually far more common than you might realize. There have been 15 corrections of at least 5.8% in the broad-based S&P 500 since 2009, and 38 moves lower in the S&P 500 of at least 10% since the beginning of 1950. This works out to an official correction every 1.84 years. In other words, crashes and corrections happen with regular frequency, and they’re the price of admission to the greatest wealth creator on the planet.

Second, use crashes and corrections as an opportunity to reassess your portfolio. Rather than running for the exit, take the time to see if the reason(s) you bought into a company still hold water. Chances are that short-term volatility in the stock market isn’t going to have an impact on your investment thesis. Reassessing your holdings will keep you from making hasty decisions.

Third and finally, feel free to go shopping, if you have dry powder at the ready. Since every single crash and correction has eventually been erased by a bull market rally, all major declines in the stock market represent opportunities for long-term investors to pick up great companies at perceived-to-be discounts.

The best thing about this three-point strategy is you won’t have to know when a crash will occur, how long it’ll last, or how steep the drop will be to make money over the long run.

Author: Sean Williams

Source: Fool: New Data Suggests a Stock Market Crash May Be Imminent

Innovative companies can deliver big-time returns to patient investors.

Whether you’re a novice or someone who’s been investing for decades, we can all agree that it’s been a wild year on Wall Street. We’ve witnessed the fastest bear market decline in history, as well as the quickest rebound to new highs from a bear market low of all time.

But there are two important facts all investors should understand about this market. First, every single stock market correction in history has eventually (key word!) been erased by a bull market rally. Secondly, we are firmly in a new bull market. In other words, it pays to own innovative, high-quality businesses, because unlike bear markets, bull markets are almost always measured in years, not months.

As this new bull market finds its legs, consider buying these four unstoppable stocks.

Teladoc Health

Precision medicine looks to be the hottest trend in healthcare this decade. Instead of one-size-fits-all treatments, anything that personalizes treatment plans or improves individual convenience is going to be celebrated. That’s why you’re going to want to own Teladoc Health (NYSE:TDOC).

Teladoc, as the name implies, is a burgeoning telemedicine powerhouse that’s seen its sales grow at a compound annual rate of about 75% since 2013 (assuming it hits $1 billion in annual sales in 2020). Yes, the company has benefited from the coronavirus disease 2019 (COVID-19) pandemic, with virtual visits more than tripling in the second quarter. However, there was a value proposition at play long before COVID-19 struck. That’s because telemedicine visits are cheaper for health insurers than in-office visits, and they more time-convenient for patients and physicians.

Were the Teladoc Health story not already exciting enough, it’s also in the midst of acquiring applied health signals company Livongo Health (NASDAQ:LVGO) in an $18.5 billion cash-and-stock deal. Livongo collects copious amounts of data on patients with chronic illnesses and relies on artificial intelligence (AI) to send its members tips and nudges to help them lead healthier lives. Livongo has consistently doubled or nearly doubled its year-on-year Diabetes member counts and is already profitable on a recurring basis, despite only having a little over 1% saturation of the U.S. diabetes market.

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CrowdStrike Holdings

When discussing no-brainer investments, cybersecurity has to be at or near the top of the list. As more and more businesses shift online or into remote work environments, there’s growing importance on protecting company-sensitive information. This protection is increasingly falling into the hands of cloud-focused cybersecurity companies like CrowdStrike Holdings (NASDAQ:CRWD).

CrowdStrike’s Falcon platform is cloud-native and uses AI to assess more than 3 trillion events each week. Basically, the company’s platform is growing smarter every day in recognizing threats. That’s obviously something CrowdStrike’s clients have come to appreciate, as the percentage of customers with at least four cloud module subscriptions has catapulted from 9% in fiscal Q1 2018 to 57% in fiscal Q2 2021 — a stretch of 13 quarters. Having existing clients spend more is CrowdStrike’s recipe for rapid margin expansion.

Speaking of expansion, the company’s gross margin has already settled into the long-term target range of 75% to 80%. This is the result of the high margin associated with subscription-based revenue, the fact that existing clients are spending more, and CrowdStrike’s triple-digit customer growth in each of the past three years. CrowdStrike should have little trouble doubling sales a couple of times this decade.

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Intuitive Surgical

Have I mentioned the importance of precision medicine?

There are dominant stocks within a specific industry, and then there’s Intuitive Surgical (NASDAQ:ISRG) in the assistive surgical space. The company has installed 5,865 of its da Vinci surgical systems worldwide over the past 20 years. That’s far more than any of its competitors on a combined basis. What’s more, some deep-pocketed competitors have run into snags prior to the launch of competing systems. Intuitive Surgical has had 20 years to build up rapport with the medical community, and its competitive advantage appears virtually insurmountable.

Additionally, the company’s operating margin is built to get better over time. During the 2000s, the lion’s share of the company’s revenue was derived from selling its pricey da Vinci system. The problem is that these systems are intricate and costly to build, which means the margins aren’t that great. However, we’ve witnessed instruments and accessories sold with each procedure and service revenue soar in recent years. These are considerably higher-margin operating segments. Through the first nine months of fiscal 2020, these higher-margin revenue channels have accounted for 73.2% of total sales.

As time passes, Intuitive’s earnings growth should have no trouble outpacing its sales growth.

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NextEra Energy

Yes, I just went ahead and included an electric utility stock among a list of rapidly growing companies that you’re going to want to own for the new bull market. As you’re about to see, NextEra Energy (NYSE:NEE) is every bit as unstoppable as Teladoc, CrowdStrike, and Intuitive Surgical.

What makes NextEra so special is the company’s willingness to innovate. No electric utility is generating more capacity from solar or wind power than NextEra. While the cost to upgrade its electric-generating capacity to renewables isn’t cheap, the reward is bountiful. NextEra’s electric-generation costs have sunk over time, and its compound annual growth rate has consistently averaged in the high single digits over the past decade. If Capitol Hill ever lays out clean-energy requirements for our nation’s utilities, NextEra Energy will be ahead of the curve.

As for the company’s traditional utility operations (i.e., non-renewable energy), they’re regulated. This is a fancy way of saying NextEra can’t pass along price hikes anytime it wants, but instead needs the OK from state public utility commissions. While that might sound like an impediment, it’s actually not. It ensures that NextEra doesn’t contend with potentially volatile wholesale electric pricing, and it makes the company’s cash flow very predictable.

Author: Sean Williams

Source: Fool: 4 Unstoppable Stocks to Own in the New Bull Market

Making money is easy when you buy into high-quality companies on the cheap.

Investing in 2020 has been quite the adventure. Thus far, we’ve witnessed the quickest bear market decline of at least 30% in history, as well as the fastest rebound to new all-time highs from a bear market low — it took less than five months for the broad-based S&P 500 to reach new highs.

Yet, in spite of the broader market being higher on the year, there are no shortage of great stocks on sale just waiting to be scooped up by investors. If you have, say, $5,000 at the ready that can be put to work over the long-term and won’t be needed to pay bills or cover emergencies, then the following great stocks could be ripe for the picking.

Fastly

First up is edge cloud platform service provider Fastly (NYSE:FSLY), which was clobbered last week after revising its third-quarter revenue forecast modestly lower. Fastly now expects to report between $70 million and $71 million in sales for Q3, which is down from its previous forecast of $73.5 million to $75.5 million in sales. The company cited demand weakness from its top customer, TikTok, as the primary reason behind its revenue revision. As some of you may know, TikTok has been threatened with a ban in the U.S. by President Trump.

While having a customer that made up 12% of first-half revenue pare back its usage is far from ideal, things aren’t nearly as dire as Wall Street might have made them appear. Even at the midpoint of the company’s reduced guidance for Q3, Fastly’s year-on-year sales will grow by 42% amid the coronavirus pandemic-induced recession.

What’s more, Fastly’s core metrics have been improving. The second quarter featured the fastest uptick in new customer add-ons since the company went public. The previous quarter also saw dollar-based net expansion rate increase 4 percentage points to 137% from the sequential first quarter. While this is unlikely to be the case in Q3, it would imply that most of Fastly’s existing clients are spending more for the company’s content delivery and security solutions.

With the pandemic pushing businesses and consumers online, the fact is that Fastly’s edge cloud solutions are going to become increasingly more important. Last week’s sell-off could be the perfect opportunity to do a little shopping.

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Walgreens Boots Alliance

Another well-known company on sale right now is pharmacy giant Walgreens Boots Alliance (NASDAQ:WBA). Even after its better-than-expected fiscal fourth-quarter operating results, Walgreens has lost 36% on a year-to-date basis, and almost 49% over the trailing two years.

The issue for Walgreens is that the pharmacy-chain operating model is built on low margins and high volume. That volume dried up big time when the pandemic hit, crushing front-end retail sales and hurting clinic revenue. On an adjusted basis, the coronavirus reduced earnings per share by $1.06 in fiscal 2020.

However, Walgreens Boots Alliance is undergoing a transformation that’s already beginning to pay dividends. The company is on track to recognize $2 billion in annual cost savings by 2022, but has spared no expenses when it comes to boosting its omnichannel presence. In the fiscal fourth quarter, online sales at Boots.com and Walgreens.com rose by 155% and 39%, respectively, from the prior-year period. The company has also increased the number of items that can be picked up through mobile order and drive-thru.

Perhaps the most exciting development is Walgreens’ partnership with VillageMD to develop up to 700 on-site, full-service healthcare clinics that’ll pair with Walgreens’ pharmacy for an integrated medical experience. Walgreens’ entire strategy is based on reaching out to patients with chronic conditions and making its stores a one-stop shop for their basic medical needs.

At roughly 8 times Wall Street’s profit forecast for 2020, Walgreens finds itself on the clearance rack waiting for value investors to buy in.

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U.S. Bancorp

Bargain shoppers would also be wise to consider investing their $5,000 into regional bank U.S. Bancorp (NYSE:USB).

There’s no question that bank stocks are getting the short end of the stick right now. The Federal Reserve has pledged to keep its federal funds rate at or near record-tying lows for the next couple of years, which’ll weigh on the interest income-earning potential for banks. At the same time, the recession has increased the need to set aside cash for an expected uptick in loan losses.

Thankfully, U.S. Bancorp is a step above the average U.S. bank when it comes to the quality of its loans and its operating approach. This is a company that has a long history of avoiding the derivative investments that wrecked the balance sheets of money-center banks during the financial crisis. By maintaining a disciplined approach to lending and focusing on the bread-and-butter of banking (loan and deposit growth), it’s been able to rebound from recessions much faster than its peers.

What’s really interesting is that, even during a recession, many of U.S. Bancorp’s important metrics are headed in the right direction. Despite an uptick in nonperforming assets, we’re seeing deposits increase from the prior-year period and sequential quarter, and witnessing an ongoing expansion of digital transactions. Over the trailing two years, the number of loan sales conducted digitally have nearly doubled to 54% from 26%. That’s great news given how much cheaper it is for banks when consumers bank online or via mobile app.

Put simply, U.S. Bancorp is a better breed of bank that’s valued at levels not seen in more than a decade. For patient investors, it’s a bargain that shouldn’t be passed up.

Author: Sean Williams

Source: The Street: Got $5,000? These Great Stocks Are on Sale and Begging to Be Bought

From what recipients will be paid to what workers could owe in payroll tax, big changes are on the way for our nation’s top social program.

There isn’t a social program in this country that bears more importance to the financial well-being of seniors than Social Security. Each month, nearly 65 million people receive a Social Security benefit, and more than 46 million of them are retired workers. Of these retirees, more than 3 in 5 rely on their monthly payouts to account for at least half their income.

It’s also a dynamic program. Despite laying a financial foundation for those who can no longer provide for themselves, the Social Security program undergoes a number of changes every year. It just so happens that these updates were unveiled by the Social Security Administration (SSA) this past week.

Here’s a closer look at the seven biggest changes to Social Security in 2021.

A person grasping a Social Security card between their thumb and index finger.

1. Recipients are going to get more money

October is the most important time of the year for Social Security recipients, primarily because it’s when the SSA announces the cost-of-living adjustment (COLA) for the upcoming year. Think of COLA as the “raise” that Social Security beneficiaries receive that’s designed to keep their benefits on par with inflation.

For 2021, Social Security beneficiaries are looking at a good news/bad news scenario. The good news is simple: You’re getting more money. The SSA announced a 1.3% COLA for the upcoming year, which for the average retired worker is going to translate into an extra $20 a month, working out to an estimated monthly payout of $1,543 a month by January 2021. Considering that prices for goods and services headed lower between March and May as a result of the coronavirus disease 2019 (COVID-19) pandemic, a 1.3% COLA is a victory for the program’s 64.8 million recipients.

The bad news is that 1.3% ties for the second-smallest positive COLA in history. But with inflation in shelter and medical-care services outpacing 1.3%, senior citizens are going to see the purchasing power of their Social Security income decline, once again.

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2. The full retirement age is inching higher

The only change we knew for certain that would happen in 2021 was an increase in the full retirement age (which is also known as “normal retirement age” by the SSA). A person’s full retirement age is the age when they can receive 100% of their monthly payout, as determined by their birth year.

In 2021, the full retirement age is going to inch up higher by two months, to 66 years and 10 months for people born in 1959 (i.e., beneficiaries who can become newly eligible next year). Put simply, claiming benefits at any point prior to reaching your full retirement age means accepting a permanent reduction to your monthly payout. Conversely, waiting to take benefits until after 66 years and 10 months for workers born in 1959 can pump up retirement benefits.

Social Security’s full retirement age will peak at age 67 in 2022 for anyone born in 1960 or later.

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3. High earners can expect to pay more taxes

Keep in mind that changes to the Social Security program don’t just affect people currently receiving benefits. One of the biggest updates next year is an increase to the payroll tax earnings cap.

The payroll tax is Social Security’s workhorse. In 2019, it generated $944.5 billion of the $1.06 trillion collected by the program. Revenue is brought in by applying a 12.4% tax on earned income (wages and salary, but not investment income) ranging between $0.01 and $137,700, as of 2020. Note, all earned income above $137,700 in 2020 is exempt from the payroll tax.

In 2021, all earned income up to $142,800 will be taxable, representing an increase of $5,100. For the roughly 6% of workers who are expected to hit this cap, we’re talking about an increase in payroll tax of up to $632.40 next year.

If you’re wondering how the SSA came up with $142,800 as next year’s cap, it has to do with the year-over-year increase in the National Average Wage Index (NAWI). Between 2018 and 2019, the NAWI rose from $52,145.80 to $54,099.99 — a gain of 3.74%, or 3.7% when rounded to the nearest tenth of a percent. Next year’s tax cap is 3.7% higher than the $137,700 in 2020. It’s that simple.

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4. The wealthy can pocket a bigger monthly benefit

Though high earners will be tasked with opening up their wallets a bit wider in 2021, well-to-do beneficiaries can also expect to receive more. After the SSA capped monthly retirement benefits at $3,011 for persons of full retirement age in 2020, the maximum payout at full retirement age is increasing to $3,148 a month in 2021. That’s an extra $1,644 a year for wealthy workers.

To net this maximum monthly payout, workers would need to have done three things:

Waited until their full retirement age to claim benefits.
Worked at least 35 years, as every year less of 35 worked results in a $0 being averaged into their eventual monthly payout.
Hit or surpassed the maximum taxable earnings cap in each of the 35 years the SSA takes into account when calculating a person’s retirement benefit.

A check next to all three of these criteria allows a retiree to net the maximum monthly benefit.

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5. Disability income thresholds climb higher

There’s no question that Social Security’s primary job is to financially protect our nation’s retired workforce. But don’t overlook the fact that 9.7 million beneficiaries are receiving a monthly payout from the Social Security Disability Insurance Trust. In 2021, the income thresholds where benefits cease to disabled beneficiaries will climb higher.

For example, non-blind disabled beneficiaries can earn up to $1,260 a month in 2020 without having their Social Security payouts stopped. Next year, this threshold is increasing $50 a month to $1,310. This means non-blind disabled beneficiaries are able to earn up to $600 extra annually without losing their benefits.

The increase is even larger for blind disabled beneficiaries. Folks who fall into this category will be allowed to earn up to $2,190 a month in 2021 — $80 a month higher than the 2020 threshold — without having their benefits stopped.

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6. Withholding thresholds for early filers receive a boost

Social Security has a number of ways it penalizes early filers. None is arguably more confusing or surprising to retired workers than the retirement earnings test. Put simply, the retirement earnings test allows the SSA to withhold some or all of an early-filer’s benefit if they earn above a preset income threshold. In 2021, these income thresholds are heading higher.

For instance, early filers who won’t reach their full retirement age in 2020 are only allowed to earn up to $18,240 a year ($1,520 a month) before $1 in benefits can be withheld for every $2 in earnings above this threshold. In 2021, early filers who won’t reach full retirement age can earn up to $18,960 annually, or an extra $60 a month ($1,580/month) before withholding kicks in.

Early filers who will reach full retirement age in 2021 will see a boost in the withholding threshold, too. Next year, early filers who hit their full retirement age at some point during the year will be allowed to earn up to $50,520 ($4,210 a month) before $1 in benefits is withheld for every $3 in earnings above this threshold. For those who are curious, that’s an increase of $160 a month from 2020 levels.

Take note that the retirement earnings test is no longer applicable once you hit your full retirement age (regardless of when you claimed benefits), and withheld benefits are returned to recipients in the form of a higher monthly payout after hitting full retirement age.

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7. You’ll have to earn more to qualify for a retirement benefit

Last but certainly not least, working Americans are going to have to try a bit harder to qualify for a Social Security retired worker benefit.

Despite what you might have heard, Social Security isn’t simply given to someone for being born in the United States. In order to receive a retirement benefit, you’ll need to have earned 40 lifetime work credits, of which a maximum of four credits can be earned each year. These credits are awarded according to an individual’s income in a given year.

For example, workers received one lifetime work credit in 2020 with $1,410 in earned income. Put another way, if a worker nets at least $5,640 in earned income ($1,410 X 4) this year, they’ll receive the maximum four credits.

In 2021, it’ll take $1,470 in earned income to earn one lifetime work credit, or $5,880 for the full year to maximize your Social Security work credits.

Though folks will have to work a bit harder to ensure a retirement benefit from Social Security, the bar to qualify is set relatively low.

Author: Sean Williams

Source: Fool: 7 Changes to Social Security in 2021

These income stocks are second to none when it comes to taking care of their shareholders.

There’s no question that growth stocks are getting all the attention on Wall Street right now. But when push comes to shove, growth stocks have historically taken a back seat to dividend stocks over the long run.

Back in 2013, J.P. Morgan Asset Management released a report that compared the average annual return for stocks that initiated and grew their payout between 1972 and 2012 to the average annual return of stocks that didn’t pay dividends over this same time frame. The results showed a near-quintupling in average annual return for the dividend-paying stocks relative to stocks that paid no dividend (9.5% vs. 1.6%), and a 19-fold aggregate outperformance over four decades.

This data really shouldn’t surprise anyone. Dividend-paying stocks are almost always profitable, time-tested businesses that have navigated a number of economic downturns. The simple fact that a company is sharing a percentage of its profits with investors is almost always a testament to the confidence a management team has in their company’s long-term growth outlook.

But not all dividend stocks are created equally. Among the hundreds of publicly traded companies doling out a dividend today, two special groups stand out. First are the Dividend Aristocrats. These are S&P 500-listed companies that have raised their base annual payout for at least 25 consecutive years.

The second and lesser-known group of special dividend stocks consists of publicly listed companies that have paid an uninterrupted dividend for longer than any living person. While these companies may not increase their payouts every year like the Dividend Aristocrats, income seekers have come to count on these stocks for quarterly or annual income in the same way they look to the East for the sunrise each morning.

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The following 15 stocks have been paying an uninterrupted quarterly dividend for 125 or more consecutive years:

  • York Water (NASDAQ:YORW): 204 consecutive years
  • Bank of Montreal: 191 years
  • Bank of Nova Scotia (NYSE:BNS): 187 years
  • Toronto-Dominion Bank: 163 years
  • Canadian Imperial Bank of Commerce: 152 years
  • Royal Bank of Canada: 150 years
  • Stanley Black & Decker: 143 years
  • BCE: 139 years
  • ExxonMobil: 138 years
  • Eli Lilly: 135 years
  • UGI Corp: 135 years
  • Johnson Controls: 133 years
  • Procter & Gamble (NYSE:PG): 129 years
  • Coca-Cola (NYSE:KO): 127 years
  • Colgate-Palmolive: 125 years

What characteristics stand out among these time-tested businesses? Let’s take a closer look.

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Holy Canadian bank dividends, Batman!

Over the past 13 years, U.S. bank dividends have been all over the map. The Great Recession caused many of our biggest banks to slash or completely halt their payouts, but this wasn’t the case for our northern neighbor. According to market historians via BNN Bloomberg, not one of the major Canadian banks has ever cut a dividend payout.

How is this possible? One answer is the strict regulatory oversight of Canada’s major banks by the federal government. Back in the late 1990s, a handful of Canada’s major banks proposed merging with one another to better compete on a global scale. However, regulators denied these mergers, citing higher domestic fees and reduced branch counts as negatives. Requiring Canadian banks to remain independent of one another is one reason the industry likely weathered the 2007-2009 economic downturn so well.

Canadian banks are also strong because of their avoidance of risky investments. Canada’s major banks have predominantly stuck with the bread-and-butter growth driver of the industry: growing deposits and outstanding loans.

Currently, Bank of Nova Scotia (also known as Scotiabank) offers the juiciest yield of the bunch at 6.3%. Shares are down 24% year to date with coronavirus fears weighing on the industry. Yet Scotiabank’s payout ratio is only about 50% of this year’s forecast earnings per share, leaving little doubt that this extraordinary payout is sustainable.

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Utilities offer big-time income utility

Boring companies are often great sources of steady dividend income, so it’s no surprise that a handful of utility stocks made the list. Regulated gas utility UGI, which is also behind AmeriGas Propane, is a company some folks might know. But say the name York Water to an investor, and you’ll almost certainly get a deer-in-the-headlights look.

York Water is a small water and wastewater utility that covers 48 municipalities in two Pennsylvania counties. It has a market cap of $568 million, trades about 38,000 shares daily, and is the greatest dividend stock you’ve never heard of. Its yield of 1.7% isn’t going to turn many heads, but the fact that it’s been paying an uninterrupted dividend for 204 years (since 1816) is absolutely phenomenal. Within the U.S., the next-closest uninterrupted dividend-paying stock trails York by over six decades (Stanley Black & Decker).

The beauty of utility stocks is that investors know exactly what they’re buying into. Consumer demand for water, electricity, and natural gas doesn’t change much, whether the economy is booming or in a recession.

Furthermore, most utilities are regulated, which is a fancy way of saying that utilities need an OK from state-level public utility commissions before they can raise rates. Having regulated operations means little or no exposure to potentially volatile wholesale pricing for electricity or natural gas.

Long story short, companies like York Water produce transparent and predictable cash flow, resulting in rock-solid payouts.

IMAGE SOURCE: COCA-COLA.

Brand-name and basic-need goods companies are great income sources

Well-known brand-name or basic-need good companies can yield a consistent payout for shareholders.

For example, Coca-Cola has doled out an uninterrupted dividend for 127 years and has increased its base annual payout for 58 consecutive years. This makes Coke a Dividend Aristocrat, as well.

Coca-Cola has one of the most recognized brands in the world, and it’s historically forged connections with consumers. Coke has holiday tie-ins, plenty of celebrity ambassadors, and has not been shy about advertising digitally or at the point-of-sale. In terms of geography, Coca-Cola operates in all but two countries worldwide (North Korea and Cuba).

Another instance of a brand-name company piling up the payouts to investors is Procter & Gamble. P&G has been paying out an uninterrupted dividend for 129 years, and has been able to do so thanks to its highly diverse line of basic-need products. No matter how the economy is performing, consumers will still need toothpaste, detergent, and toilet paper. This demand predictability is responsible for Procter & Gamble’s 64-year (and counting) streak of base annual payout increases.

Author: Sean Williams

Source: Fool: These 15 Stocks Have Paid a Dividend for 125 (or More) Consecutive Years

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