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Retire Early by Investing in 5 Stocks

One of the best ways to retire early is by investing in stocks, which outperform most asset classes and are easily bought and sold. Stocks are driven by their underlying businesses. So, they aren’t created equal. Some are risky, while others are much safer! Riskier stocks can be more volatile and more unpredictable both in terms of their stock price actions and their businesses’ profitability.

Overpriced stocks add another layer of riskiness. Yes, that’s right! Some great businesses may turn out to be bad stock investments because investors overpaid for them.

In the subsequent slides, we’ll introduce the five types of stocks that can help you retire early, followed by specific stock examples of each type. Let’s begin!

Businesses that tend to be resilient to recessions typically provide products or services that are needed throughout the economic cycle, no matter if the economy is doing well or not.

The more conservative you are as an investor and the closer you are to retirement, the more you want to fill up your portfolio with these types of stocks that provide stable income and growth. Specifically, they offer yields of about 4% and earnings growth of about 5-7% per year.

At a high level, we’re referring to quality banks, utility, real estate, energy infrastructure, and telecom businesses. These stocks tend to pay stable dividends. In the best cases, they pay growing dividends.


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You want to sprinkle some low-yield but high-growth stocks in your portfolio because this type of stock can deliver greater total returns in the long run compared to the stable income and growth stocks discussed in the previous slide.

This type of stock tends to trade at higher price-to-earnings ratios than the previous group. These stocks offer yields of about 2% or less but offer earnings growth rates of roughly 10%. Once you’ve chosen quality businesses in this category and buy them at fair (or better) valuations, you can earn long-term returns of about 12%!

The income you earn from this category may be low initially, but it’ll double faster thanks to the higher growth rate.

Businesses riding on a secular growth trend have a long runway for growth. For example, the advent of the Internet led to the rise of e-commerce and cloud computing. Greater computing power and the development of the field of Computer Science gave birth to artificial intelligence and deep machine learning. Renewable power and real asset management are also in a secular growth trend.

When you find wonderful businesses in secular growth trends, keep buying the stocks opportunistically when they’re trading at fair (or better) valuations, hold on to the shares, and watch the magic play out over years, sometimes decades.

One example is Microsoft (NASDAQ:MSFT) riding the cloud computing train, such as converting the Office Suite, a desktop application, to Office 365, a cloud service that provides recurring revenue. After years of stagnant growth, its earnings grew at double-digit rates for three consecutive years through fiscal 2019. And its earnings are set to grow more than 10% per year in the foreseeable future.


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You can make loads of money if you hit the jackpot on ultra-high-growth stocks, which may be riding on a secular growth trend. At times, ultra-high-growth stocks aren’t even profitable yet but are growing their sales at a rapid pace.

If you get it wrong, you can lose your shirt by investing in these stocks, but you can get proportionately much greater returns for the risk you take. These stocks are potential multi-baggers! If you happen to identify one or a few, load them up and you can retire much earlier than you think.

Depending on your risk tolerance and comfortability, you might have 0-10% of your stock portfolio in this type of stock.

Turnaround stocks have underlying businesses that are, well, turning around. The business could be changing course due to a changing landscape in the industry, or the business could have made a bad acquisition that caused the company to take a huge loss.

In any case, depending on how the business fares in the future, the turnaround of the stock can fail on one end or succeed and lead to humongous returns on the other end.

Cyclical stocks have a pattern of interchanging booms and busts. Most notably, many cyclical stocks can be found in the energy and industrials sectors. If you catch the wave and buy at a trough and sell at a peak, you can make gigantic gains.

Notably, buying turnaround and cyclical stocks is riskier than buying stocks in the first three categories discussed.


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Royal Bank of Canada (TSX:RY)(NYSE:RY) is a banking leader in Canada. Its earnings are largely recession-proof. Even when the financial crisis of 2007/2008 triggered a recession, the earnings of Royal Bank remained quite stable and kept the quality bank’s dividends intact.

Some investors are worried about a low interest rate environment. Because Royal Bank has a wide moat with a large-scale operation and cost advantages, it can make good profits even when interest rates are low.

In the trailing 12 months, Royal Bank reported net income of $12.9 billion, which was greater than its Big-Bank peers. This indicates that it indeed has the largest scale. Investors can expect the bank to keep growing its earnings and its dividends for many years to come.

Currently, Royal Bank offers a yield of 3.9%.

Fortis (TSX:FTS)(NYSE:FTS) is a top North American electric and gas utility, after strategically acquiring quality assets in the U.S. when the greenback was weak against the loonie.

Its products and services are needed through economic cycles. Moreover, it largely generates earnings from transmission or distribution assets. Therefore, its earnings have been stable and growing for decades. It’s no wonder that it has increased its dividends per share for more than 40 consecutive years!

The utility’s payout ratio is comfortably at about 70%. In fact, its earnings are so predictable that management already guided to increase the dividend by about 6% per year over the next few years.

Currently, it offers a yield of 3.4%.


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Enbridge (TSX:ENB)(NYSE:ENB) is another recession-resilient business. It’s the largest energy infrastructure company in North America. Think of it as the company that moves and stores oil and gas.

Its cash flows kept steady and growing through the recession of 2008/2009 and energy price collapse in 2014. So, it was able to keep paying its dividends. In fact, it has increased its dividend per share for 23 consecutive years.

With a safe payout ratio of less than 65% of distributable cash flow and growth of that cash flow, it’s set to increase its dividend by 10% next year and approximately 5-7% per year thereafter.

Currently, it offers a very juicy yield of 6.2%.

Canadian National Railway (TSX:CNR)(NYSE:CNI) has created tremendous value for long-term shareholders. Although it offers a low yield compared to Royal Bank, Fortis, and Enbridge, CN offers greater earnings growth potential. Specifically, CN is estimated to increase its earnings per share by about 11-12% per year over the next few years.

Railroad companies are some of the best industrial businesses you can invest in. They’re typically less cyclical than most industrial businesses. So, railroad companies’ earnings are more stable. Moreover, CN is a top-notch railroad company, which is uniquely positioned, with a network that spans Canada and mid-America and connects the three coasts of the Atlantic, the Pacific, and the Gulf of Mexico.

Currently, CN offers a yield of 1.8%.


Amazon CEO Shocks Bay Street Investors By Predicting Company “Will Go Bankrupt”

Amazon CEO Jeff Bezos recently warned investors that “Amazon will be disrupted one day” and eventually “will go bankrupt.”

What might be even more alarming is that Bezos has been dumping roughly $1 billion worth of Amazon stock every year…

But Bezos isn’t just cashing out, he’s reinvesting his money into a company utilizing a fast-emerging technology that he believes will “improve every business.”

In fact, this tech opportunity could be bigger than bigger than Amazon, Tesla, and Berkshire Hathaway combined.

Get the full scoop on this opportunity that has billionaire investors like Bezos convinced – before it’s too late…


Click here to learn more!

Alimentation Couche-Tard (TSX:ATD.B) is another low yield but high growth stock. At first glance, investors may ignore it due to its puny yield of about 0.6%, but its five-year dividend growth rate of 28% tells a different story.

Couche-Tard is a success story and a rare breed as a consumer staples stock on the Toronto Stock Exchange. By making strategic acquisitions and improving operations, it expanded from one convenience store in Quebec to 16,000 strong worldwide.

Most of its stores offer road transportation fuel that encourages repeat visits. The industry is still fragmented, and management sees growth opportunities in the U.S. and in Asia.

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) is riding on multiple secular growth trends. Not only does it invest in real assets in growing areas, such as infrastructure and renewable power, but as the manager and operator, it also earns rising management and performance fees as the assets it manages increase in size and scale.

There’s a growing need for alternative asset management, as evident by BAM’s double-digit-rate growth since 2015 in assets under management, fee-related earnings, free cash flow, and institutional client relationships.

In fact, BAM is one of my high-conviction growth stock ideas that can make investors into millionaires as long as investors buy it at a good valuation.

Shopify’s (TSX:SHOP)(NYSE:SHOP) ultra-high growth is due to its riding on the secular trend of e-commerce and its management having the insight to continue investing heavily into the business to innovate and provide tools that merchants need to stay competitive and ahead of the curve. If merchants succeed using Shopify’s platform, Shopify will succeed.

Shopify’s three-year revenue growth rate is an incredible 73% — essentially more than five times it was in 2015! The company’s recent offering of its U.S. fulfillment network with machine learning capabilities and subsequent acquisition of 6 River Systems, a leading provider of collaborative warehouse fulfillment solutions, should assist the company in its next leg of growth. The recent +20% correction in Shopify stock is a wonderful entry point for long-term investors to accumulate shares.


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Cineplex (TSX:CGX) stock appears to be cheap and offers an enticing yield of 7.4%. The company is a turnaround contrarian stock, as it attempts to spur growth by investing in other areas of entertainment, including recreation rooms and recreational golf facilities, outside of its core movie theatre business.

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is a cyclical business that rides on the ups and downs of energy prices. When energy prices go up, the stock heads higher and vice versa. Interestingly, CNQ is a top-quality cyclical stock that offers a safe yield of 4.2%, as it generated free cash flow of more than $4.6 billion in the trailing 12 months, which comfortably covered the dividends it paid by 2.8 times.

To retire early, other than saving early, you also need to be picky with your investments. If I were to start my portfolio from scratch with the knowledge that I have today, I’d start by filling 60-80% of my portfolio in stocks from the first three categories: recession-resilient, low yield but high growth, or secular growth stocks – when they’re priced at good valuations.

I believe it’s best to build your stock portfolio with the foundation of quality businesses that you trust for the long term before taking on excess risk, in ultra-high growth, turnaround, or cyclical stocks, to attempt to generate greater returns. It especially doesn’t hurt to be extra careful since the North American stock markets have been in a bull run for about a decade.

Kay Ng owns shares of Enbridge, Alimentation Couche-Tard, Brookfield Asset Management, and Shopify.


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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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