For many investors, the stock market may appear to be a pile of rubble right now thanks to interest rate hikes and a less-than-stellar economic outlook. However, finding diamonds in the rough can be very rewarding for long-term investors. Thus, the search for stock gems is on, with many investors looking through this period of weakness to better days.
Stock gems can take varying forms. For those in or nearing retirement, perhaps these stocks provide steady, and preferably rising, dividends. Growth investors, on the other hand, are looking for stock gems that can outpace their peers. And when assessing any stock, you want to find a valuation profile that you’re comfortable with.
The three stocks below offer all of these things — growth, income and value — and should outperform over the next decade or two. I own two of them but haven’t pulled the trigger on the other.
With that said, let’s dive into why these stock gems are worth accumulating at this point in the market cycle.
Restaurant Brands (QSR)
Restaurant Brands (NYSE:QSR) is one stock I’d certainly call undervalued at its current price despite gaining 15% over the past year. The parent company of a number of world-class fast food chains, including Tim Hortons and Burger King, Restaurant Brands has delivered impressive growth in recent quarters.
Despite inflation and other macroeconomic headwinds, Restaurant Brands saw revenue increase 13.4% in 2022 to $6.5 billion. Even more impressive, earnings per diluted share were up nearly 21% to $3.25. Meanwhile, the company saw strong performance across its four segments, three of which delivered double-digit percentage sales growth last year.
This sort of growth is sustainable given the rather under-penetrated markets in Asia the company is focusing on. Additionally, the appointment of Joshua Kobza as Chief Executive Officer (CEO) in March 2022 is a positive development.
On the dividend front, there’s a lot to like. With a yield of 3.2%, QSR provides stability and a solid base of returns for long-term investors. Notably, Restaurant Brands has been consistent in raising its distribution, suggesting that as long as earnings are growing, this is a company that should provide even more income over time. I like that.
On the valuation front, QSR stock is fairly priced at around 21 times earnings. This is lower than the stock’s five-year average, though it’s still a premium to the market multiple. I think investors are rightly paying up for the defensiveness this business offers. And valuation expansion is likely if we head into dire economic times.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) is a major oil and gas player with operations in the United States, the Middle East, Africa and Latin America. In addition to higher energy prices, OXY stock has benefitted from being a favorite of legendary investor Warren Buffett, who has been a big accumulator of the stock in recent quarters. Buffett’s views on growth, income and value are second to none.
The company’s dividend has been reduced in the past to preserve the company’s liquidity profile. That said, after Occidental’s most recent earnings release, it raised its dividend by 38.5%. With a forward payout ratio of 12.8%, even if energy prices decline considerably, this is an income stock with plenty of room to maintain its distribution.
Much of this is due to the company’s strong fundamentals. For the fourth quarter of 2022, Occidental generated adjusted earnings of $1.61 per share on $8.3 billion in revenue. This fell short of analyst estimates, but revenue was up more than 150% year over year. While revenue and earnings are expected to decline this year, the company’s solid fundamentals make up for its slowing growth profile.
Concerns around growth are evident in the company’s valuation multiples, which are at rock-bottom levels. Trading at around 5 times trailing earnings, this stock is about as cheap as they come. Thus, it’s no surprise Buffett continues to load up on shares at these levels.
As the most popular drink company worldwide, Coca-Cola (NYSE:KO) is a stock gem that requires no introduction. With a market capitalization of $277 billion and operations in more than 200 nations, Coca-Cola is the largest alcohol-free drink producer worldwide. Despite having a sizable global footprint, the organization believes there is still potential for growth given that it holds a 36.5% market share in North America and far less in emerging markets.
Having been in operation for almost 150 years, Coca-Cola is a reputable and profitable company. Management is committed to returning cash to shareholders in the form of dividends and share buybacks. Last year, the business generated cash flow from operations of $9.5 billion and earnings of $2.19 per share. In 2022, Coca-Cola used only 20% of its free cash flow to fulfill its dividend commitment, leaving significant room for a considerable payout increase next year, even without considering the cash flow generated from selling assets.
Due to its diversified product range and more efficient operations, Coca-Cola could continue raising its dividend for many years, as it has done for the past 60 years. Thus, the stock’s current dividend yield of 2.9%, alongside its solid growth profile and reasonable valuation, make KO stock a buy in my books.
On the date of publication, Chris MacDonald has positions in QSR and KO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.