We all like to hear the opinions of successful stock pickers and fund managers. After all, they are in the business of investing and they have access to more information that the average investor. So it makes sense to listen to them when they tell say we should buy these stocks and avoid those stocks.
Unfortunately, you cannot just blindly follow their picks. They are human and they make mistakes all of the time. You have to put your own research and analysis into any investment before you pour your hard earned money into it.
In January, Money pulled together some successful fund managers to get their insights into what stocks you should buy. The group included the managers of Dodge & Cox Stock (DODGX), Parnassus Core Equity (PRBLX), T. Rowe Price QM U.S. Small-Cap Growth Equity (PRDSX), and Tweedy, Browne Global Value (TBGVX). Below are a handful of their picks to buy and why I think you should or shouldn’t listen to them.
Should You Buy These Stocks?
Charles Schwab (SCHW)
The first pick is Charles Schwab, a discount broker. Schwab has been on a tear lately, picking up new clients. In fact, last year they increased new accounts by 4%. The reason Schwab can pick up new clients is because of how they have been doing business.
- They pick up high net worth investors through their partnerships of custody with registered investment advisors (RIAs).
- They pick up retail investors through low cost investments and innovation.
The low cost and innovation are what is really driving the growth. Schwab offers many no commission ETFs and recently announced they reduced stock commissions to $6.95 per trade. They also offer a completely free robo-advising service as well.
So how do they make money with such low fees? They reinvest bank deposits and they make some money on the price spread of their no fee ETFs. With interest rates low, they make a nice amount on the $186 billion they currently have. As interest rates rise, so will the interest income on this money. And you can bet that new investors will continue to flock to Schwab.
As a result, I agree with the experts that Schwab is a buy.
CVS Health (CVS)
CVS is a retail pharmacy and has made news with it deciding to stop selling cigarettes and to take over the pharmacies in Target stores. Since 2015 the stock is down over 30% due to competition from other pharmacies and their lower prices.
The experts say that even with lower priced competition, CVS customer retention rate is still at 96% and that the company is poised for more growth.
I disagree. I feel that lower priced competition will continue to negatively affect CVS. I can use my personal experience on this one. I used to use CVS as my pharmacy but prices were higher every time I went to refill a prescription. I ended up switching to the grocery store. I now pay $9.99 for a prescription that was costing me $48 at CVS.
Even with the stock market rising, many people are still struggling financially. As more grocery stores offer incentives to bring your prescriptions and new online pharmacies emerge, CVS is going to have to do something to be more competitive with their pricing.
Service Corporation International (SCI)
You probably never heard of SCI and for good reason. They are in the funeral services business. And while it might not seem like this is a place to invest your money, you are wrong. The experts say this stock is a buy and I agree with them.
First off, the United States has an aging population. Currently 16% of the population is 65 or older. Another 20% is age 50-64. In other words, the demand for funeral services will continue to rise as the years go by.
And because of the size of the baby boomers, many are making purchases now to save on costs. Any basic economics class will tell you that when demand rises, so does price. As a result, SCI has been able to increase prices which added close to $2 million to their bottom line in the recent quarter.
Going one step further, most funeral parlors are still mom-and-pop owned. The opportunity is there for SCI to expand into newer markets by purchasing these smaller funeral parlors and increase revenue this way as well.
Intel is the world’s largest chip manufacturer. And with more and more devices having computer chips, there won’t be any decline in Intel’s business even though less people are buying personal computers. For this reason, the experts feel that Intel is a buy.
I agree completely. As stated, new technology is including computer chips including phones, tablets and even washing machines. And as we demand faster results and smaller devices, Intel will continue to create more robust chips.
While the stock trades at 20 times earnings, it is still cheap given that sales increased by 19% last quarter.
So far, the experts and I agree on 3 of the 4 stock picks and you should buy these stocks. It’s important you take all of the information you have to decide whether or not you agree with us or disagree. As I said at the beginning of this post, you cannot just blindly follow the experts thinking they are right all of the time.
The truth is they are wrong more often than not, so you are best served by getting ideas from their top picks and do further research to make the final decision.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.