One of the earliest -- and most important -- lessons that successful investors learn is the value of looking beyond the headlines. While popular stocks may grab average investors' attention, often these tickers can be siren songs, luring many into unwise investments and distracting them from proven winners.
But those willing to follow this advice may be at a loss for how to find the compelling stocks that others are missing. Fortunately, they need not look far, for Deere(NYSE: DE), Heico(NYSE: HEI), and Linde(NASDAQ: LIN) are three stocks flying under average investors' radars that are well worth buying right now.
1. Deere
Tracing its origin story back to 1837, Deere is one of the oldest operating companies available to investors. For nearly two centuries, Deere has demonstrated impressive resilience in the face of numerous economic downturns -- something that warrants recognition and respect from investors.
With a $111 billion market cap, Deere is a clear leader in farming and construction machinery, and identifying industry leaders is a great first step in finding winning investments. Consider Deere stock's performance over the past 20 years, a period during which its total return has vastly outperformed the S&P 500. Deere hasn't developed groundbreaking medicines or innovated revolutionary technology. What it has done is consistently manufactured reliable heavy machinery and grown shareholder value.
One of the important things to recognize about Deere is that the company's business is cyclical. Farmers and construction and mining companies aren't rushing out to buy new equipment every year. Plus, in some cases, commodity prices will also affect their decisions to invest in new equipment.
Nonetheless, Deere's management has consistently demonstrated the ability to grow profits from the seeds of shareholder equity. Over the past 10 years, Deere has averaged an annual return on equity of 30.4%.
2. Heico
Pivoting from terra firma to the wild blue yonder, investors will find that Heico is another high-flying stock. The aerospace company specializes in parts for a variety of customers, from commercial aircraft producers to NASA, and its stock has been a proven winner for investors.
Heico offers a great opportunity to gain exposure to the aerospace and defense industries in a way that entails less risk than investing in individual airlines or defense contractors. Heico provides essential parts for a wide variety of customers, so if an individual customer's business dwindles, it won't be catastrophic for Heico. In the last three years, for example, no single customer accounted for more than 10% of the company's sales.
In addition to playing a critical support role for aerospace and defense companies, Heico's allure stems from its ability to execute a growth-through-acquisition strategy. Since 1990, Heico has completed nearly 100 acquisitions, and these transactions have helped the company to grow both the top and bottom lines considerably. From 1990 to 2023, Heico has grown revenue and net income at compound annual growth rates (CAGR) of 15% and 18%, respectively.
3. Linde
Similar to Deere, Linde is an industry leader that warrants attention despite its lack of popularity. A formidable force in the distribution of industrial gases, Linde serves customers found in numerous industries, including food and beverage, healthcare, and electronics -- to name a few.
While the competitive advantage that its infrastructure provides represents one of its alluring qualities, Linde's ability to generate copious amounts of cash represents another. Over the past five years, Linde has averaged annual free cash flow of $4.1 billion, and from 2013 to 2022, Linde has increased its free cash flow at a whopping CAGR of 23%.
With its robust organic cash generation, Linde has been able to reinvest in the company without having to rely heavily on debt. For example, Linde has a low debt-to-equity ratio of 0.34 as of the end of the third quarter of 2023. In addition, Linde has potential to raise its dividend without jeopardizing its financial security. The company's dividend currently offers a moderate forward yield of 1.3%, but its payout ratio has averaged a conservative 62% over the past five years.
Aim higher than the average investor with one of these three high-flying stocks
If you're like most investors, you're not looking to generate average rates of return in your investments. You're looking for tickers that can outperform the market and put you further down the path toward financial security. One way to make progress down this path is to look for winning stocks -- stocks that are rock-solid, though they might not enjoy much celebrity.
For income investors looking to fortify their holdings with conservative dividend plays, Deere and Linde should be strong considerations. Those interested in gaining exposure to the aerospace and defense industries, on the other hand, will find Heico to be a smart choice.
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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Linde. The Motley Fool recommends Deere and Heico. The Motley Fool has a disclosure policy.
