Individual investors were jolted by the sudden reappearance of market volatility in October. Given a range of issues spanning natural gas availability heading into winter, oil sanctions on Iran, and an escalating trade war with China, it's possible that increased volatility is here to stay -- in the short term, at least.
That may make it worthwhile to begin looking at large-cap companies with mature businesses, which can provide stability during turbulent market periods. We asked three contributors here at The Motley Fool for the best such stocks to buy right now. Here's why they chose NextEra Energy (NYSE: NEE), Kohl's Corporation (NYSE: KSS), and Apple (NASDAQ: AAPL).
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Investors can count on this utility's stability
Maxx Chatsko (NextEra Energy): Many stocks coughed up a significant chunk of market cap in October, sending the S&P 500 lower by 6.9% as a result. That makes NextEra Energy stock's 2.9% gain all the more impressive. Why did investors run to the $80 billion utility for cover?
Well, it didn't report third-quarter 2018 earnings until the final week of October, but I think the numbers validate the idea that NextEra Energy is as solid of a business as they come. It's not really a secret at this point, as evidenced by the stock's thumping of the S&P 500 in the last two decades.
Nonetheless, the utility reported year-over-year growth in adjusted earnings per share of 18% for the third quarter and 14% for the first nine months of the year. It reached its full-year 2018 target for return on equity at Florida Power & Light while deploying 13% more capital (an indicator of future rate increase allowances) during the most recent quarter compared with the year-ago period. It completed the acquisition of Florida City Gas, which will provide an important growth opportunity in natural gas utility infrastructure. And its power generation business added over 1,400 megawatts of wind, solar, and storage power capacity to the backlog -- getting it closer to its goal of a backlog stuffed with 40,000 megawatts of renewable power projects by 2020.
It's a bit unfair, but having a larger capital base allows a utility to invest more into its business, thus increasing its capital base, and the cycle continues. As the largest publicly traded utility, NextEra Energy is taking full advantage of its size. It expects to grow adjusted EPS from $6.70 in 2017 to over $9.40 in 2021, while growing the dividend at around 13% per year through at least 2020. That provides a powerful argument for owning this large-cap stock as a hedge against market volatility -- and for building long-term wealth.
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High hopes for the holidays
Todd Campbell (Kohl's Corp.): The all-important holiday shopping season is almost upon us, and this year owning Kohl's could pay off even more handsomely than usual because of the Toys R Us bankruptcy, Sears Holdings' filing for bankruptcy protection, strong employment and wage growth, a collaboration with e-commerce Goliath Amazon.com, and a bigger focus on electronics.
Kohl's is featuring Microsoft's Xbox One S on Black Friday, and it has expanded its assortment of Nest and Google brand products from Alphabet to attract techies. And to increase foot traffic, it recently expanded a pilot program that allows consumers to return Amazon.com purchases free of charge at more than 100 Kohl's stores near Los Angeles, Chicago, and Milwaukee.
Those moves could help Kohl's attract new shoppers, but it could benefit even more if shoppers shun Sears because of bankruptcy concerns. Kohl's generates most of its total revenue from apparel and home products, and apparel and soft-home goods, like bedding, accounted for about $4.3 billion of Sears' sales last year, or roughly 32% of Sears' total merchandise revenue. If apparel and home foot traffic shifts from Sears to Kohl's, it could be margin-friendly because profit-friendly private-label brands and exclusive brands, including Simply Vera Vera Wang, account for 42% of Kohl's sales.
The Toys R Us bankruptcy could similarly boost foot traffic and sales because it's given Kohl's an opportunity to add new brands this year, including LEGO.
Overall, the National Retail Federation estimates average consumer spending this holiday season will increase 4.1% because of wage growth, and since November and December account for about 30% of Kohl's annual sales, it should be able to capture its fair share of this additional revenue, making this a good time to buy its shares.
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The unstoppable tech company
Travis Hoium (Apple): Apple is the largest publicly traded company in the world, but it's still a growth stock today. Over the last five years, revenue has grown by 53%, net income is up 61%, and hundreds of billions of dollars have been generated in free cash flow.
What's amazing about this growth is that iPhone volumes have been flat for most of the past five years. Instead of growing units sold, Apple has managed to squeeze more out of each customer. For example, it did that in the most recent quarter by increasing the average sale price of an iPhone from $618 a year ago to $793. High-end features like Face ID and storage limitations on low-end devices have pushed consumers to more expensive phones -- and they're still buying in droves.
Accessories also play a key role in Apple's ecosystem and growth. The Apple Watch is essentially an accessory of the iPhone and it's now the best-selling watch in the world. AirPods are another extension of the Apple ecosystem that make life just a little easier and increase the overall spend per iPhone user. Add in cloud services, app store purchases, and music subscriptions and Apple has a growing revenue base and is locking customers into the ecosystem along the way.
It's the lock-in that makes Apple so valuable long term. Like it or not, customers are loyal to Apple and keep coming back for updated phones, watches, computers, tablets, and more. That will continue to drive growth, and with pricing power growing, the growth days at Apple are far from over.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Maxx Chatsko has no position in any of the stocks mentioned. Todd Campbell owns shares of Alphabet (C shares), Amazon, Apple, and Microsoft. Travis Hoium owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.