Bad news: The plane crashed.
You’ve washed up on a desert island, the sole survivor. You’re stranded thousands of miles from civilization. It could be years before you encounter another human being.
When the chips are down like this, it’s all-important to take inventory of the wreckage and your immediate surroundings.
Your very life depends on it. So, a look around your new home reveals:
- Scrap airplane aluminum for crafting shelter and weapons…
- A source of fresh water…
- Natural fibers for fashioning rope, animal traps, and clothing…
- Coconuts and pineapples for distilling booze of some kind…
- A full set of Louis L’Amour novels…
- An anthropomorphized volleyball to keep you from descending into madness…
- Top-flight stocks that will pay you unreasonably high returns for the rest of your life…
Uh-oh!
In the stocks department, you’ve come up critically short.
Not to worry. All is not lost. Because I’ve got you covered with these, my very own personal “desert island stocks.”
Here they are…
“Buy and Forget” Has a Lot Going for It
Warren Buffett once suggested that you should never buy a stock unless you were prepared to close books the very next day and not open them for another five years.
And if you’re stuck on an island, your net worth is entirely dependent on those stocks that you are stuck owning for those five years.
If you have a bunch of clinical-stage biotechs and pie-in-the-sky tech start-ups, you might be rich, but it’s unlikely – and even more unlikely you’ll stay that way if you can’t sell.
If you had a bunch of three-month call options on high-flying tech stocks, you’ll probably be broke.
Given the current nosebleed valuations in stock and bond markets, even index fund owners could find themselves returning from the island with a lot less than they left with.
So, in any desert island portfolio, you want companies that are all but certain to survive and thrive (unless there’s a global nuclear war while you’re away – in that case, stay on the island) no matter what the economy or markets do while you’re stranded.
My first pick is a classic.
Desert Island Stock No. 1
No matter how long you live on that island, certain things will happen back in the world. People will live in buildings or single-family homes. They’ll go to work in factories and offices. They’ll shop for things. Some will go to malls and some will buy online. The online purchases will travel to a warehouse before final delivery to the home. When they travel, they’ll stay in hotels. Folks will prefer all of these buildings to be air-conditioned.
Depend upon it.
A few other things will happen as well. We’ll see the trend toward developing and using renewable energy sources continue to grow. I don’t care if you believe in climate change or not, clean air is a pretty good idea, and renewable energy that lowers our dependence on fossil fuels is just smart.
Solar, wind, and even hydroelectric power will all see a noticeable uptick in demand and become a much more significant part of the global energy markets.
Oil and gas will still be a part of the energy picture, and it will be delivered via a pipeline. Trains will still be used to transport people and products from point A to point B. Cell phones will still be used, and the cloud will continue to grow. Buildings will be built. Electricity will continue to be pretty popular.
So, a bet on one company that gets you exposure to all these facets of economy and society – the world – would be a pretty smart “desert island” pick.
Brookfield Asset Management Inc. (NYSE: BAM) is that very company.
It’s in all these businesses – and on the prowl for more. Brookfield invests its own money right alongside its investors’ cash in real estate, infrastructure, renewable power, and private equity projects, and the results have been spectacular.
Unless the world changes drastically while you are on your island, that should continue to be the case.
Desert Island Stock No. 2
Molson Coors Brewing Co. (NYSE: TAP) is another extremely smart “buy and forget” bet.
It’s one of the largest brewers in the world. It sells some of the top brands, both in the United States and abroad.
Now, I’ve heard all the stories about declining beer sales as “health conscious” folks out there turn toward wine and liquor.
Maybe that’s true, maybe it isn’t, but I (accidentally) find myself in bars quite often, and I can tell you that plenty of Miller and Coors Lite is being quaffed out there. “Crafty” beers like Blue Moon are also doing well.
People aren’t going to stop drinking beer anytime soon.
I’ll go one better: If there’s a recession while you’re on your island drinking your homemade pineapple and coconut hooch, drinkers back in civilization will drop the higher-priced stuff and go back to beer.
Come hell or high water, Molson Coors will be just fine. More importantly, it should be a larger, wealthier company when you return.
But beer is not the whole story here.
Cannabis is legal for recreational use in several jurisdictions in the United States and all of Canada. That genie’s not going back in the bottle anytime soon. While you’re on the island, it’s a pretty good bet even more jurisdictions will open up to everyday tokers out there.
Molson Coors will be there, too. It’s entered into an agreement with pot grower Hydropothecary Corp. (TSE: HEXO) to make cannabis-infused beverages.
On the most recent earnings call, CEO Mark Hunter discussed the venture by stating, “With Canada breaking new ground by federally legalizing cannabis this fall, Molson Coors Canada is in a unique position as one of Canada’s leading beverage companies to pursue opportunities in this nascent but rapidly expanding consumer segment.”
I think it’s highly unlikely we wouldn’t see the company expand its operations further into legal cannabis to take advantage of the extensive distribution network already in place.
Remember, you could see legal pot in the United States by the time you’re found out there on the seas, and that would provide fantastic earnings growth for Molson Coors, driving the stock price substantially higher than today.
Desert Island Stock No. 3
Rounding out my favorites is Fiat-Chrysler Automobiles NV (NYSE: FCAU). The stock has taken a hit with the unexpected death of CEO Sergio Marchionne last month. New CEO Mike Manley has some big shoes to fill, but his success at Jeep would seem to indicate he is more than up for the job.
The company has a fantastic brand lineup including Jeep, Ram, Dodge, Chrysler, Fiat, Fiat Professional, Alfa Romeo, and Abarth. It also makes the super high-end Maserati automobiles.
Fiat Chrysler has a solid plan in place to grow revenue and earnings at a comfortable pace over the next four years, and that should push the stock price a lot higher than its current depressed value.
The company has an enterprise value to earnings before interest and taxes ratio of less than 5, making it one of the cheapest large-cap stocks in U.S. markets right now. This is despite the fact that most analysts are looking for average annual earnings increases of about 20% over the next five years.
Fiat is also taking a bigger role in the development of driverless cars. It is partnering with Waymo, the driverless car company started by Alphabet Inc. (Nasdaq: GOOG), to roll out more than 60,000 autonomous Chrysler Pacifica hybrid minivans to use in a ride-hailing service in the United States. It’s also working with BMW (ETR: BMW) and Intel Corp. (Nasdaq: INTC) to develop driverless cars. The future is coming, and Fiat Chrysler plans to be a big player in the new world of driving.
Owning these three stocks will allow you to sleep well out there on your desert island without much worry over your nest egg back home, leaving you free to drink your homemade booze, bond with the volleyball, and get to know Louis L’Amour’s body of work better than he himself did.
You’ll participate in the growth of the world economy while you relax in your island paradise because you own great businesses purchased at unreasonably good prices.
— Tim Melvin
Source: Money Morning