These seven names are great long-term stocks, according to RBC.
Market conditions currently appear vague and confusing as lingering COVID-19 ordeals serve as the backdrop to a complex economic and market environment. Consumer price index numbers from December showed the highest spike in prices since 1982, driven by supply chain constraints and low labor supply. Yet demand chugs on undeterred. Expected higher interest rates could tamp down on inflation and benefit bank stocks but may also hamper broader economic growth. RBC Capital Markets recently released a report reviewing their top 30 global ideas for 2022, all of which are high-conviction, long-term ideas that they also consider good investments for the first quarter. Here are seven of the best long-term stocks to buy, per RBC.
Mastercard Inc. (ticker: MA)
Though Mastercard’s logo appears on many credit and debit cards, the company doesn’t take deposits or extend lines of credit, instead of serving as an intermediary that processes payments. With revenue derived from a transaction fee levied on sellers, Mastercard’s top line tends to move in lockstep with the broader consumer economy. During a period of high demand and inflating prices, revenue grew 30% and net income increased 46% year over year in the third quarter. Aside from this traditional business model, growth opportunities exist with buy-now, pay-later systems, and market expansions, particularly in traditionally cash-based international markets. “Mastercard remains one of our best ideas in the space given our belief that investors should look to focus on long-term, secular-driven stories that provide solid organic growth with opportunities for margin expansion,” says RBC analyst Daniel Perlin.
The second highlight from RBC’s list of long-term stocks to buy is the third-largest oil company in the U.S., ConocoPhillips. Recently, COP has been active in Texas’ Permian Basin, reaching a deal in early December to acquire Royal Dutch Shell PLC’s (RDS.A) Permian properties for $9.5 billion. This follows a 2020 acquisition of Concho Resources, another Permian producer, for $13.3 billion, and underscores its commitment to maintaining and expanding its presence in the region. Its 2022 capital expenditure plan targets $7 billion of shareholder returns and includes a new “variable return of cash” tier that returns a percentage of excess cash flows to investors. “The scaled Permian position enhances the outlook with the greater free-cash-flow generation, asset diversity, and development flexibility,” says RBC analyst Scott Hanold.
Louisiana-Pacific Corp. (LPX)
The number of homes for sale is down 57% since 2019, according to research from Realtor.com, causing prices to soar as builders struggle to close the supply gap. New home starts grew 12% in November, putting building materials manufacturer Louisiana-Pacific in a great position to contribute and benefit. Offering products such as siding, oriented strand board, and engineered wood products, LPX was named Home Depot Inc.’s (HD) merchandising partner of the year for lumber, as it successfully navigated supply crunches. LPX’s share price has risen more than 90% this past year, third-quarter revenue grew 53% and net income jumped 106% year over year. “Over the next few years, we expect LPX’s (oriented strand board) and (engineered wood products) businesses to benefit from continued growth in the US housing market, providing incremental free cash flow that can be used to return capital to shareholders,” says RBC analyst Paul Quinn.
M&T Bank Corp. (MTB)
Founded in Buffalo, New York, as a Manufacturers and Traders’ Trust Company, M&T Bank has since expanded from its humble origins, completing more than 20 acquisitions of small and medium-size banks since 1987. It operates more than 700 branches in a variety of Northeastern and mid-Atlantic states and maintains assets of $152 billion and deposits of $129 billion. With the Federal Reserve expected to raise interest rates in 2022, banks stand to benefit from higher interest payments on loans. What’s more, in February 2021, M&T bank announced a $7.6 billion acquisition of People’s United Financial Inc. (PBCT), which is expected to close this quarter and make M&T the region’s leading commercial bank. “We anticipate M&T’s pending acquisition of PBCT to deliver immediate tangible book value accretion combined with long-term solid earnings accretion, which should drive long-term shareholder value,” says RBC analyst Gerard Cassidy.
Mosaic Co. (MOS)
Mosaic was formed in 2004 following the merger of IMC Global and Cargill’s crop nutrition division, two major players in mining and food. The company produces potash and phosphate fertilizers, key inputs for agricultural products. Since September 2020, increased demand from farmers along with international supply constraints sent prices for phosphate and potash up 100% and 134%, respectively, according to the American Farm Bureau Federation. Meanwhile, shares of MOS have risen more than 40% in the past year, and North American fertilizer producers posted their best gains in years. This November, Mosaic’s total volume sold decreased, but sales revenue for phosphate and potash grew 49% and 67%, respectively, underscoring the robust impact of inflated prices. Aside from high prices cushioning top-line growth, “the company has embarked on several transformation initiatives in the past several years that have resulted in improved operational efficiency, lower costs, and rising cash flow,” says RBC analyst Andrew Wong.
British American Tobacco PLC (BTI)
Headquartered in London, British American Tobacco manufactures and sells cigarettes, tobacco, and other nicotine products. The stock has been hot, rising about 17% in the past month. From a valuation perspective, the company has an attractive price-earnings ratio of 11, significantly lower than key competitors Philip Morris International Inc. (PM) and Altria Group Inc. (MO). British American Tobacco also pays one of the highest dividends among peers, offering a 7.1% dividend yield and a 58% dividend payout ratio. That said, traditional tobacco sales have been steadily declining as the number of active smokers decreases. “BAT is taking credible steps to develop its portfolio of new category products (Vapor, tobacco heating products, and modern oral),” says RBC analyst James Edwardes Jones, but he cautions that “BAT’s prospects remain predominantly a function of the cigarette industry.”
Twilio Inc. (TWLO)
Twilio provides companies with programmable communications tools to drive customer engagement, such as support channels, appointment reminders, and personalized coupons. Following its November 2020 acquisition of Segment for $3.2 billion, Twilio became the world’s No. 1 customer data platform. With digital transformation, a prevailing tailwind across all industries, Twilio’s revenues have benefited, growing by at least 40% year over year for the past nine quarters. While the stock has fallen more than 35% in the past month, these factors may present a compelling case to buy the dip. “Twilio remains one of fastest-growing owing company in software, with around 50% organic growth, driven by best-in-class net expansion rates, cross-sell, and new use cases,” says RBC analyst Rishi Jaluria, who puts a price target of $450 on TWLO stock. That’s a hefty implied upside, considering that Twilio closed at $217.16 on Jan. 13.