These stocks have quality businesses behind them.
Some investors might be feeling the brunt of stock market volatility as concerns about inflation persist. The last several years have been a bumpy ride, that’s for certain.
If you’re focused on the long term, you should be holding stocks of great companies that can weather the storm. You should hang on to them for several years at minimum but more likely a decade or more. And if you’re only putting your cash into quality companies that you’re comfortable with for the long term, these volatile periods needn’t deter you from your financial goals.
The bull market has been in full swing in the first half of 2024, and while no investor can predict what will happen in the latter half of the year, you don’t need to with the appropriate buy-and-hold horizon. If you have cash to invest in great companies, here are two unstoppable-looking stocks to consider adding in August.
1. Johnson & Johnson
Johnson & Johnson (JNJ 1.10%) has been a mainstay in the pharmaceutical industry for 138 years and counting. The business isn’t a high growth play, but its broad footprint in healthcare thanks to an extensive portfolio of medicines and medical devices drives consistent revenue, profits, and cash flow.
The company’s spinoff of its slow-growing consumer health business (with products like Listerine and Tylenol) into the publicly traded Kenvue last year was a smart move that enabled the other businesses to flourish while bringing in a windfall of cash.
Some investors might be concerned about the talcum powder litigation that Johnson & Johnson has been involved in for years at this point, with recent reports saying that the company could be close to settling roughly $6.5 billion worth of claims with plaintiffs. Earlier this year, it reached a $700 million settlement and was already ordered to pay $2 billion in a previous settlement.
It has been working to mitigate these talc cases by placing liability on a subsidiary, which would then file for bankruptcy. The idea is to settle all cases in one fell swoop, without imposing legal liability on the parent. This approach has been struck down twice in federal court, although the company is seeking to take this route to settle its claims a third time.
Regardless of how this shakes out, it’s likely that the company will be required to pay out billions more before these lawsuits are settled. Investors should know that Johnson & Johnson has the balance sheet to support these obligations. It had more than $25 billion in cash on hand as of the most recent quarter and generated about $19 billion in free cash flow in the trailing 12 months alone. It also brought in profits of $16 billion on revenue of nearly $87 billion over the last 12 months.
Top-selling immunology drugs Stelara and Tremfya and oncology treatments Darzalex and Erleada are just a few of the heavy hitters in Johnson & Johnson’s portfolio. The company is also a faithful dividend payer, with more than six decades of consecutive annual increases. Its yield was around 3% at the time of this writing, nearly double that of the average stock in the S&P 500. This healthcare stock continues to look like a smart buy for the long-term, income-seeking investor.
2. Starbucks
Starbucks (SBUX 1.72%) has made headlines in recent days for a significant change in the C-suite, with the unexpected departure of CEO Laxman Narasimhan, who had been in that role for only about a year. In April 2023, he took over from longtime CEO Howard Schultz, who had returned to the role in an interim capacity after Kevin Johnson left in 2022.
The part that sent shares skyrocketing was the word that Chipotle‘s CEO Brian Niccol would be leaving the fast-casual Mexican chain to take the helm at Starbucks in September. Chipotle has done extremely well under Niccol, with profits growing more than sevenfold since he became CEO in 2018.
Starbucks has gone through numerous leadership and business changes in recent years. Headwinds in key markets like China, where competition is fierce, along with constrained consumer spending post-pandemic have hurt its growth. It seems that the company’s largest shareholder, Schultz, wanted to steer the boat in a different direction.
As of the recent quarter, revenue was down slightly from the year-ago period, but Starbucks is still profitable. Over the trailing 12 months, it had profits of $4 billion on revenue of $36 billion.
It is also cash-flow positive, with trailing-12-month free cash flow totaling $2.6 billion. The company had about $4 billion of cash on hand as of the most recent financial report.
I wouldn’t say that Niccol’s role as the new CEO is the only reason to buy the stock. The business has plenty of growth potential, which just needs to be leveraged effectively. Time will tell how Niccol will apply the strategies he used to drive Chipotle’s exceptional performance in recent years.
Starbucks is much larger, with a massive global footprint. The company remains a top coffeehouse chain worldwide and is a faithful dividend payer — two reasons that might induce investors to take a second look. The stock yields about 2.5% at the time of this writing and has a payout ratio around 63% of earnings.
Rachel Warren has positions in Johnson & Johnson. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Kenvue, and Starbucks. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue and short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
