It's not easy finding winning stocks. Often, to do so, one needs to shine a light on the many companies that have been passed over to find those few with overlooked potential. At other times, it means picking out well appreciated equities that now might look a bit overvalued, but that actually have further to climb.
With this in mind, we asked some of The Motley Fool's best and brightest to offer up some companies that are worth the attention of investors willing to forego judging a underappreciated book by its cover, or a popular one by its ambitious P/E ratio. In reply, they offered up Buckeye Partners LP (BPL), Nike (NKE -1.11%), and Activision Blizzard (ATVI).
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Not every part of the energy sector is suffering
Sean O'Reilly (Buckeye Partners LP): Since its humble beginnings as a subsidiary of John D. Rockefeller's mammoth Standard Oil empire, Buckeye Partners LP has been a provider of pipeline, transportation and midstream logistics services. Its logistics solutions include the transportation, processing, storage and marketing of liquid petroleum products. Its assets include a 6,000-mile pipeline system that stretches across 16 states in the US, and it boasts total storage capacity of about 115 million barrels of crude oil. Buckeye also owns and operates 120 petroleum products terminals, with its Bahamas terminal sporting the title of world's largest petroleum products storage facility.
Buckeye reported first-quarter 2017 earnings per unit of $0.88 on revenue of $969.3 million. While those earnings were down 12.9% from a year earlier, largely because of increased spending on infrastructure development, revenue rose 24.2%. due to strong performance across all segments. For full 2016, Buckeye generated revenue of $3.2 billion and net income of $535.6 million. That was a slight slide from 2015, but net income increased thanks to cost cutting and sound management.
Buckeye's first-quarter cash distribution of $1.25 per unit was a 4.2% hike from the prior-year period. In Q4 2016, it declared a cash distribution of $1.24 per unit, likewise a 4.2% year-over-year increase. As oil prices recover, prospects for midstream logistics providers such as Buckeye look bright. Demand for storage should grow if a price recovery incentivizes producers to drill more so they can recoup some of their losses from the nearly two-year period of price declines. Buckeye's expanding portfolio of logistics facilities, as well as a presence in the major energy-producing regions, put it in a perfect position to benefit from a resurgent energy sector.
To prepare itself to take advantage of the anticipated recovery, Buckeye has continued to make infrastructure investments, adding capacity and expanding in the major energy hubs. For example, the company is adding 640,000 barrels of capacity at its Port Reading facility. Buckeye is also leveraging strategic acquisitions to back its long-term growth. For example, the company spent $1.2 billion on a 50% stake in VTTI Energy Partners LP.
Buckeye currently sports a sky-high 7.7% dividend yield -- a princely return that investors can enjoy as they await an eventual energy rebound.
The brand that never dies
Travis Hoium (Nike): There aren't a lot of brands that have had the kind of staying power of Nike. Since it solidified its place as a household name once Michael Jordan started wearing Nikes in the early 1980s, the brand has branched out into new products and is now a dominant force in everything from running shoes to casual attire.
What makes Nike a great investment for investors today is that it's leveraging the changing retail landscape rather than being destroyed by it. Plenty of brands and retailers are being disrupted by e-commerce competitors such as Amazon, but Nike has embraced the showroom concept with its retail stores, and has become one of the best digital marketing companies in the world. On a weekly basis, it launches limited-time products from retro Jordan sneakers to custom running shoes, creating a sense of urgency as well as fostering a relationship with its customers. Very few companies have been able to adapt to the decline of brick-and-mortar retail as well.
I don't see Nike's dominance in its apparel niches changing either. The information that the company gets by reaching customers directly is far more valuable than what it garnered when its wares were sold only through traditional retail channels. Now, it can design with an insight into the most popular styles, and market straight to the most profitable customers. And somehow it seems to stay one step ahead of the game on fashion trends. Nike may be worth $85 billion and trade for 22 times earnings, but it still has a bright future and is a great buy for long-term investors.
The video game Kingpin
Brian Feroldi (Activision Blizzard): If you are not a gamer, you might be stunned to learn just how big the video game industry has become. Consider Activision Blizzard. This leading video game publisher owns a slew of hit franchises such as Hearthstone, Starcraft, World of Warcraft, Call of Duty, and Candy Crush. As of the end of 2016, Activision counted nearly 450 million players across its portfolio of games. To put that number in context, consider that Netflix only recently crossed the 100 million member mark.
All of those players are helping Activision to drive huge gains in revenue and profits. In 2016, its top line soared 42% to $6.6 billion. What's more, selling video games online is a highly scalable business model, so the company's EPS grew by 62%. Predictably, the markets have rewarded the company's growing profitability by sending its share price ever higher.
Despite its recent successes, there are ample reasons to believe that the company's profit engine is just getting warmed up. Margins are poised to expand as the company finds new ways to drive growth in its digital games. The company is also making a big push to be a leading provider of e-sports content. Combine those potential growth drivers with the company's proven knack for making smart acquisitions, and Activision looks poised to continue to deliver for shareholders.
