With the U.S. economy proving resilient in the face of high interest rates, investors may wonder which stocks to buy and hold as recession risks recede. Recent data showed that second-quarter GDP growth outpaced forecasts, which has boosted optimism that the economy can continue expanding steadily. This is especially true as the Federal Reserve is expected to begin cutting rates later this year.
This positive outlook is supportive of stock prices. Lower interest rates have historically correlated with market gains. If inflation remains subdued, rates could stabilize or fall, aiding further equity upside. All told, conditions appear favorable for the stock market to resume setting new highs.
For long-term investors, consideration turns to stocks that may benefit most in this environment. While technology has rallied on artificial intelligence (AI) developments, its future is harder to predict over a five-year horizon.
Alternatively, companies with proven track records of earnings growth offer a lower-risk way to achieve stock price increases or dividend income potentially rises over time. Three stocks to buy and hold for their potential return over the next five years include:
Enbridge (ENB)
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Enbridge (NYSE:ENB) is one of the stocks to buy and hold for income-focused investors. The company manages a large portfolio of natural gas and oil pipelines in the United States. It boasts approximately 30% market share in oil transportation and 20% in gas transportation. Enbridge also has additional pipeline projects underway that are expected to be completed over the coming years.
As interest rates ease as expected by the Federal Reserve, Enbridge’s earnings should improve. The company’s interest expense currently accounts for over 20% of its EBITDA. With economic growth, oil and gas transportation demand will likely increase as existing pipelines are near maximum capacity. This positions Enbridge well to benefit from higher revenues as demand outstrips supply.
Considering a price-to-earnings (P/E) ratio of 19.2x, ENB stock appears undervalued. Its enterprise value is nearly double its market capitalization. The stock also offers a secure 7.3% dividend yield. Dividend payments seem reliable following a 9% increase in distributable cash flow last year.
Altria Group (MO)
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Cigarette manufacturer Altria Group (NYSE:MO) has managed to maintain its sales thanks in part to increasing demand overseas. Additionally, the company is working on future-proofing itself by investing in new consumables, such as cannabis and smokeless tobacco.
While Altria’s shares may not surge in price, MO stock remains one to buy and hold for the long term. That is because Altria has a long-standing history of consistent payouts as a “Dividend King”. This means it has consistently increased its dividend over the last 50 years or more.
Altria’s shares have risen 25% so far this year, giving it a P/E ratio of 10.6x. This is lower than the benchmark S&P 500, which stands at 28.6x. Even after the recent rise in the share price, its market cap is still 20% below its enterprise value, suggesting that Altria stock remains undervalued.
Due to its consistent dividend payouts and history as a “Dividend King,” Altria remains a stock to buy and hold for the long term.
Blackstone (BX)
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Blackstone (NYSE:BX) is the last one of the stocks to buy and hold for the next five years or so.
As the world’s largest alternative investment manager, Blackstone is well-positioned to benefit from a lower interest rate environment. With cheaper capital, investors can allocate more funds to areas like infrastructure, real estate, and private equity, which are Blackstone’s core business segments.
The investment manager ended the previous year with over $1 trillion in assets under management (AUM). It also saw substantial inflows of $40 billion last quarter. Given its dividend policy of distributing most income to shareholders, Blackstone also offers appealing returns. This is especially true in a strong market environment. For example, a Fed rate cut could fuel a surge in the real estate industry and greatly improve Blackstone’s earnings.
12 of 14 Wall Street analysts overwhelmingly rate Blackstone stock as a buy. Its trailing (53.8 times) versus forward (29.5 times) P/E ratio differential suggests earnings growth. Therefore, Blackstone’s already solid dividend yield of 2.4% has the potential to increase further.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Stavros Tousios, MBA, is the founder and chief analyst at Markets Untold. With expertise in FX, macros, equity analysis, and investment advisory, Stavros delivers investors strategic guidance and valuable insights.
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