It's easy to get caught up in the growth stories of companies you see in the business headlines every day. But there are plenty of great companies that are well managed, with strong competitive advantages, and that are quietly growing their businesses while Wall Street focuses on flashier stocks.
To help you find some of these under-the-radar companies, we asked a few Motley Fool contributors which stocks Wall Street may not be paying enough attention to. They came back with Nelnet (NYSE: NNI), Franco-Nevada Corp. (NYSE: FNV), and American Tower (NYSE: AMT). Read on to find out why.
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A company with 40% of a huge industry
Chuck Saletta (Nelnet): With its recent acquisition of Great Lakes Educational Loan Services, Nelnet now processes more than 40% of the student loans in the country. With around $1.5 trillion in outstanding student loans out there, that's a giant chunk of a giant industry, all funneling through one company.
Yet despite the company's prominence, not many Wall Street analysts actively follow Nelnet. Only two sell-side analysts have a rating out on it, and only one of those has updated its ranking within the past year. That gives investors a chance to buy a top stock in its industry that's simply not on Wall Street's radar. A big part of that is because despite its prominence in its industry, Nelnet sports a mere $2.1 billion market capitalization, making it a relatively small company overall.
Investors have a chance to get in at a reasonable price, as Nelnet sports a trailing price-to-earnings ratio below 10. While Nelnet is not expected to grow by leaps and bounds over the next few years, its acquisition of Great Lakes Educational Loan Services is expected to be immediately accretive to earnings. That means it expects its profit to be stronger as a combined business than it would have been as a standalone company.
It's rare to be able to buy a substantial player in a critical industry at a reasonable price. Because Nelnet is a relatively small company that's not well followed on Wall Street, that opportunity is there.
Isn't this gold stock alluring enough?
Neha Chamaria (Franco-Nevada Corp.): Wall Street isn't really fond of precious-metal stocks, perhaps because of the unpredictable and volatile nature of the industry. But what if I told you about a gold stock that's been a multibagger in the past decade and is now venturing into newer avenues like oil and gas?
Though Franco-Nevada gives you leverage to precious metals, it isn't a miner. It's a streaming and royalty company that buys metal streams from other miners at a discount or gains royalty rights over mines in exchange for financing the miners upfront. That's a double-dip advantage for the company: It doesn't incur or bear any mining-related costs and risks, and it secures precious metals at prices substantially below spot prices.
Not surprisingly, Franco-Nevada earns high margins, is a free cash flow-positive company, and has an unbroken 10-year stretch of dividend increases. That's a pretty rare sight in the precious-metals industry.
Franco-Nevada is now exploring opportunities in the oil and gas sector, and it purchased several royalty interests in key oil-producing regions such as the Permian Basin and Stack play in Oklahoma last year. The move should not only make Franco-Nevada the most diversified player in the industry but also add a potentially lucrative angle to its business. Wall Street isn't paying much attention to the stock, but I strongly believe if there's one gold stock you want to buy, this is it.
This company is connecting the future
Chris Neiger (American Tower): With all of the talk of Internet of Things, unlimited data plans, and the coming 5G wireless expansion, you'd think there would be more investors paying attention to the one technology all of these things have in common: wireless towers. American Tower, a tower company and real estate investment trust, is one of the biggest tower companies in the world, and the growth of unlimited data plans worldwide should spur more growth.
American Tower's shares are up about 26% over the past year, compared with the S&P 500's 17% gains, but the real opportunity will probably come as cellular usage continues to climb both in the U.S. and abroad. The company owns about 40,000 sites in the U.S. and 108,000 internationally, and American Tower estimates that data usage will grow at a compound annual growth rate of 25% to 30% over the next five years in the U.S. and faster beyond America's borders. As that happens, carriers will need more capacity on their networks and will either have to build more towers or upgrade existing ones.
The company inks long-term deals with carriers, usually 10 years, and that means about 98% of the company's revenue is recurring.On top of American Tower's opportunities, the company also pays a dividend that currently sits at 2% keeps ticking up, and it's well positioned in this niche market, as Verizon Communications and AT&T are just getting started with 5G. For investors looking for a stock Wall Street is currently overlooking, American Tower is certainly worth a look.
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Chris Neiger has no position in any of the stocks mentioned. Chuck Saletta has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends American Tower and Verizon Communications. The Motley Fool has the following options: short April 2018 $130 calls on American Tower and long January 2019 $80 calls on American Tower. The Motley Fool has a disclosure policy.