The US economy is once again expected to grow the fastest of the G-7 countries in 2018. So we continue to focus on US stocks that do lots of business at home. We expect the three US stocks below to profit in 2018.
This year, we continue to focus on US companies that generate a good chunk of their sales at home. The case for investing at home remains compelling. In 2018, the US is expected to grow by 2.6 per cent, the best of the G7 (Group of Seven industrialized countries). Canada is second-best with expected growth of 2.4 per cent. Germany is a close third at 2.2 per cent.
Some big economies continue to fare less well than the US: Japan (expected economic growth of 1.3 per cent in 2018), the UK (economic growth of 1.7 per cent) and Russia (economic growth of 1.2 per cent). Of the big economies, India (economic growth of 7.5 per cent) and China (economic growth of 6.5 per cent) are expected to do better.
Plus, the high US dollar reduces the value of sales and earnings generated abroad in foreign currencies. Given this outlook, we again focus on US stocks that earn significant profits at home.
There’s lots more gold in those McDonald’s arches
McDonald’s Corp. (NYSE—MCD) is the world’s leading global food services retailer. But the US accounts for 49 per cent of its operating income.
McDonald’s posted decent results in the third quarter of 2016. In particular, its global same-store sales advanced by a healthy 6.0 per cent. This growth occurred in all of the company’s reporting segments. Though the US market experienced a more modest same-store sales increase of 4.1 per cent, this growth was better than expected.
In 2017, McDonald’s is expected to earn $6.53 a share. That’s up by a solid 14.4 per cent from earnings of $5.71 a share in 2016. In 2018, it’s expected to earn $7.02 a share, an increase of 7.5 per cent.
McDonald’s has raised its dividend for over 40 years in a row. The current dividend of $4.04 a share yields a decent 2.3 per cent. McDonald’s also keeps on buying back its shares. This consumer stock has momentum and remains on buy.
Takin’ care of (other people’s) business
Paychex Inc. (NASDAQ—PAYX) provides computerized payroll-accounting as well as human-resource products and services. Its shares are up by 16.4 per cent from last year. The company has 605,000 customers. These are mostly small- to medium-sized businesses, with 10 to 200 workers. It’s often easier and cheaper for them to deal with Paychex than to set up their own internal departments.
In the year to May 31, 2018, Paychex is expected to earn $2.44 a share. That’s up by 10.9 per cent from $2.20 a share last year. In fiscal 2019, its earnings are expected to climb by 12.7 per cent, to $2.75 a share. With the US economy growing more strongly, we expect more business-creation to take place. Paychex could exceed the current expectations.
Paychex has raised its dividend in recent years. It now pays $2.00 a share, for an attractive yield of over 2.9 per cent. The company also rewards its shareholders by buying back its own shares. That’s little surprise, given that management owns 11.7 per cent of the company.
While Paychex is not cheap, it remains a consumer stock to buy for long-term gains plus high and growing dividends.
This dividend aristocrat is at 45 years and counting
PPG Industries (NYSE—PPG) is a global manufacturer of performance and industrial coatings, optical and specialty materials and glass. Even though it operates 155 manufacturing facilities and has affiliates in 72 countries, it generates 36 per cent of its sales in the US.
In 2017, PPG is expected to earn $5.88 a share, up 1.6 per cent from $5.79 a share in 2016. In 2018, its earnings are expected to advance by 11.1 per cent, to $6.53 a share.
Thanks to PPG’s consistent earnings growth, it has raised its dividend for more than 45 years in a row. That is, it’s what’s known as a ‘dividend aristocrat’. In the US, that’s a company that has raised its dividend for at least 25 consecutive years. Based on the company’s share price, the dividend of $1.80 a share yields a decent 1.5 per cent.
PPG Industries remains an attractive manufacturing stock to buy for long-term share price gains as well as decent and rising dividends. Buy.
This is an edited version of an article that was originally published for subscribers in the January 12, 2018, issue of The Investment Reporter . You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter .
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