Boston Beer Co Inc (SAM), Johnson & Johnson (JNJ), McDonald’s Corporation (MCD): Should You Be Worried That Corporate Earnings Are Slowing Down?

Page 1 of 2

Several reports are circulating in the financial media that EPS growth for the S&P 500 member companies is slowing down to a trickle (or even poised for an outright drop) and P/E ratios are getting too high. Some analysts say that by later this year, earnings will only grow by single digits.

Should this concern the average retail investor?

Not if you invest for the long term and look for companies that have solid fundamentals in place. Let’s discuss three businesses to consider for your portfolio.

This Sam is for you

Boston Beer Co Inc (NYSE:SAM), the brewer of some of the most popular craft beers, has experienced strong growth over the recent past and the long term. EPS has appreciated more than 37% in the last quarter and 15% for the trailing 12 months, and it has averaged 23% for the past five years. The stock has followed suit, rising more than 80% since last November and tripling since 2010.

Boston Beer Co Inc (NYSE:SAM)

This strong performance will continue so long as the key fundamentals remain in place.

The company has little long-term debt, which will allow it to spend funds on research and development and new products, which Boston Beer Co Inc (NYSE:SAM) introduces on a regular basis. This summer, its signature Samuel Adams Boston Lager brand was first offered in a can.

Boston Beer Co Inc (NYSE:SAM) has a strong management team in place. Founder and chairman Jim Koch has given up the CEO duties but remains an integral part of the company’s operations. He still has a vested interest in how Boston Beer performs. He even uses an old family recipe to brew the beer and has set up a sort of venture capital fund for up-and-coming entrepreneurs in the food and hospitality industry.

Finally, Boston Beer Co Inc (NYSE:SAM) had more than $27 million in free cash flow available at the end of 2012.

A caveat (and potential negative) is that the stock is not a value play by any measure: Its P/E is above 40, its price-to-book ratio is greater than 10, and its PEG is higher than three. All are indications that SAM is overvalued. However, based on the strong fundamentals and projections of continued success, an investment in Boston Beer Co Inc (NYSE:SAM) may be warranted for those needing a growth stock in their portfolio for the long term.

No Band-Aids needed

Johnson & Johnson (NYSE:JNJ), the monolithic maker of medical devices, pharmaceuticals, and consumer health-care products, is another solid company to consider. Johnson and Johnson is growing its earnings again after a brief lull in 2011 and 2012. On a TTM basis, EPS has increased by about 50%.

The company has been using acquisitions, such as Synthes, and new product introductions (several new Aveeno brand items were introduced recently) to expand.

It has a long-term debt-to-equity ratio of only 14%. This allows the company to use cash more efficiently to fund its extensive drug research and file lucrative, multiyear patents, which gives it a wide moat to fend off competitors.

Another selling point for Johnson & Johnson (NYSE:JNJ) is its history of growing its dividend. It has increased the payout every year for the past half-century, pumping it up at a compounded annual rate of 14%. The stock is a good one to consider for a retirement portfolio.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!