If you’ve been following me for a while, you know I love market sell-offs. Sell-offs are how you take profits on winners and get better buys on stocks you want to own. I am a true contrarian and a “blood in the streets” kind of investor.
And that’s what this week’s Two-Minute Retirement Solution is about… Which stocks a retired person should be buying during and after a sell-off.
All too often when the market takes a hit, and we want to take advantage of some lower prices, we focus on how much a stock has dropped in price rather than how its fundamentals will drive it back up, which, except in the rarest of circumstances, they always do.
The tendency is to jump into stocks that have gotten really cheap rather than looking closely at what will make them winners again.
Here’s a company that I really like that is down over 10% from its 2013 high and has everything a bargain-hunting retired person should be looking for.
Canadian National Railway (NYSE: CNI).
First of all, rails are virtual monopolies. And I love monopolies. Seven railroads dominate all of the United States, Canada and well into Mexico with almost no overlap in their service areas.
Canadian National is the most efficient – 15% more efficient than the best of the other six. It is the only one with access to three coasts – Pacific, Atlantic and the Gulf. It covers all of Canada, 75% of the U.S. and is into Mexico, as well.
It has raised its dividend 17 years in a row at a growth rate of 16%. And maybe most important to retired folks, its business is diversified over geographies and commodities. Also, 77% of its revenues are derived from six different areas:
- Forest products
- Metals and minerals
And this diversity is what will beat the one weakness all rails have that can affect retired folks… their cyclical natures. The more diversified their revenue sources the less they will fluctuate less when the inevitable slowdowns hit the different markets they serve.
It has an 11% growth factor for the next five years. It will benefit from the U.S. housing boom and the energy boom in North America. Its exposure to three coasts means it will participate in the exploding middle class in Asia, an improving European Union and the U.S.’s improving economy.
As the market does its thing in 2014 – and most expect lots of ups and downs – this is the kind of bargain you should be looking for.
Bargain hunting is great, but focus as much on how the company will recover, as well as on how much the stock price has dropped.