Investing is a constant balancing act between risks and potential rewards. Generally speaking, the stocks that have the most potential for growth also face the most risks, while the ones that look to have a more certain future are often priced to already reflect the hope of that future.
That often makes it challenging to find stocks that are worth enough of an investment that they become the core of your portfolio. Every once in a while, though, the market presents opportunities that have the right combination of growth prospects and reasonable values to be worth a substantial investment. With that balance in mind, here are three stocks to consider building your portfolio around.
Imagine life without this company’s services
Canadian pipeline giant Enbridge (NYSE:ENB) operates the world’s largest crude oil and liquids pipeline system, as well as a huge natural gas distribution system. Oil and natural gas are fundamental to power generation, manufacturing, and transportation: basically much of what makes modern life comfortable. Moving those resources from where they’re found to where they’re processed and used is how Enbridge makes its money, and that makes it fundamental to broad swaths of the economy.
In addition to being so essential, Enbridge also benefits from being involved in an industry that few people want around their neighborhoods. That opposition makes it harder and costlier for new pipeline capacity to be built, which provides an incredible competitive advantage for existing large players.
That combination adds up to a business that has generated around $9.5 billion in operating cash flows over the past four reported quarters. That cash flow easily covered the approximately $6.8 billion in dividends it handed out to shareholders, while still leaving a generous amount for covering maintenance and expansion. With a market capitalization around $66 billion, it trades at about seven times that operating cash flow, making it reasonably valued for a cash-generating machine.
Note that since Enbridge is a Canadian company, U.S. based investors will see some fluctuation in its quarterly dividend due to exchange rates. In addition, U.S. investors who own Enbridge outside of their retirement accounts will face an automatic withholding tax on those dividends. Still, with a yield around 8% (and a dividend that recently was increased), it’s a powerhouse worthy of consideration.
A mini economy on its own
Insurance behemoth Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) is perhaps best known for being the vehicle by which Warren Buffett amassed his billions. Under his guidance, the company has morphed from being a struggling textile…
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