Old but not forgotten. The saying applies to all sorts of things, from people to architecture to great books. You might also apply it to your portfolio.
When people think about growth stocks they often think about the Apples, the Googles and the Facebooks of the world. And while there certainly is a lot of money to be made from picking the right technology stocks, investors who strictly buy growth stocks at the exclusion of other more stable sectors are often making a mistake.
“Old economy,” after all, most definitely does not mean dead economy, as a look at some of these sectors shows.
Why it’s still relevant: You can’t get much more old economy than railroads, but there is still no more efficient way for transporting freight long distance.
Old economy stock to consider: Union Pacific Corp. (NYSE: UNP). Shares of this growth engine have more than tripled in five years, and it doesn’t show signs of slowing down. Union Pacific is the country’s leading freight line, with a fleet of more than 8,000 locomotives.
How it stays current: Railroads might have been key to settling the West more than a century ago, but today they must distinguish themselves with superior technology and analytics to manage large, complex networks and maintain on-time deliveries. Union Pacific’s ability to maintain its market lead shows a mastery of these new economy factors.
Sector: Food and Beverage
Why it’s still relevant: Besides the fact that people still have to eat and drink, some of the oldest food and beverage giants are the best positioned to usher in an era of healthier eating on a large scale.
Old economy stock to consider: PepsiCo (NYSE: PEP). While the fourth quarter wasn’t kind to Pepsi – which suffered a staggering 25% drop in profits and a small dip in revenue – those results were due largely to foreign exchange factors rather than underlying fundamentals, and Pepsi weathered these currency challenges better than rival Coca-Cola (NYSE: KO).
Why the future looks bright: This maker of sugary sodas has taken the bold step of embracing healthier lifestyles through recent acquisitions, including Quaker Oats and Tropicana. Today, in addition to its namesake carbonated drink, Pepsi sells bottled water, Greek yogurt, oatmeal, hummus and oven-roasted low-fat chips.
Why it’s still relevant: From bicycles to cars, kitchen cutlery and heavy machinery, steel is a fixture of modern life.
Old economy stock to consider: Steel Dynamics (NASDAQ: STLD). It earns a profit and it pays a generous dividend. Its stock has grown almost 10% in the past year.
Why consider buying: It’s not exactly a diamond in the rough, but Steel Dynamics is a well-managed and innovative company in an often troubled sector. And it makes a product that’s essential in single-family homes, massive construction projects, planes, trains and automobiles.
Sector: Brick and Mortar Retail
Why it’s still relevant: Did you know that the vast majority of retail sales still occur offline?
Old economy stock to consider: Best Buy (NYSE: BBY). These are challenging times for physical retailers, but brick and mortar retail isn’t going away. Retailers that sell big-ticket appliances that require some tire kicking, as well as smartphones and other electronics that are often impulse buys, have a clear edge in this environment.
The future opportunity: The demise of RadioShack, which has filed for bankruptcy and will close 1,700 stores, essentially removes a key competitor. Best Buy has wisely committed to an omnichannel retail strategy, and as its web presence strengthens it should support increased sales both online and off.
These are just a sampling of the many promising investments that hail from the so-called old economy. One of the benefits of looking to these more established sectors is that it’s often easier to separate the promising businesses from the laggards.
Buying a newly minted tech stock can often feel like a gamble. While old economy stocks might not offer the same potential for off-the-charts growth, the good ones can win the race with that old strategy: slow and steady.
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