Calling stocks "no-brainers" is generally something not to be taken lightly. However, the four businesses mentioned in this article operate in niche industries poised to deliver steady growth over the long haul.
Buoyed by clear megatrends that should support each company's core operations for decades, these are as close to no-brainers as may exist in the stock market.
Let's explore what makes Enphase Energy (NASDAQ: ENPH), UFP Industries (NASDAQ: UFPI), Franklin Electric (NASDAQ: FELE), and Waste Management (NYSE: WM) undeniably sound stocks under $200 to buy and hold for the long haul.
1. Enphase Energy
Commanding a dominant 48% share of the U.S. solar microinverter market, Enphase Energy has quickly become a force in the solar technology industry. Powered by sales of its microinverters and batteries growing 56% annually over the last five years, Enphase has seen its stock rise by more than 2,300% over the same time.
Since its microinverters convert direct current (DC) to alternating current (AC) at the panel level, Enphase differentiates itself from traditional string inverters by providing superior efficiency when dealing with partially shaded panels.
With BloombergNEF expecting the global installed capacity for solar to roughly increase 10-fold by 2050, the company's growing suite of residential and commercial products has plenty of growth potential ahead.
Best yet for investors, Enphase's return on invested capital (ROIC) -- a measure of a company's profitability compared to its debt and equity -- has ballooned to 28% thanks to its impressive 20% net profit margin.
Data source: YCharts
Stocks with high and rising ROICs tend to outperform their peers over the long haul, making this figure important to investors.
Trading at 23 times free cash flow (FCF), Enphase's valuation is the lowest it has ever been. With analysts expecting 33% sales growth in the coming year, the solar industry's lengthy growth runway remaining, and Enphase's budding profitability, this growth stock may be the rare no-brainer buy.
2. UFP Industries
While UFP Industries may not be a niche dominator like Enphase, its diversification across the wood and non-wood composite manufacturing industry has proven to be a market-beating proposition.
Generating $8.1 billion in sales and $577 million in net income over the trailing 12 months, UFP operates through three core business segments:
- Retail solutions: Prowood (decking and panels), Outdoor Essentials (fencing and landscaping), Deckorators (composite decking and railing), and Edge (siding and trim)
- Packaging: Structural packaging (wood, steel, and corrugated for crates and containers), PalletOne, and protective packaging solutions (stretch/shrink films, strapping, labels, and hardware and software solutions)
- Construction: Site-built (roof trusses, wall panels, floor systems, and framing), factory-built (for modular and manufactured homes and recreational vehicles), commercial, and concrete forming
With each segment contributing between $2.4 billion and $3.7 billion in sales during 2022, UFP offers a balanced attack across the home building, home improvement, and e-commerce industries.
Whereas many businesses face "diworsification" by spreading themselves too thin with new product ideas, UFP has seen its ROIC grow from 5% in 2013 to 20% today. On top of that, the company has raised its 1.2% dividend for 10 consecutive years and the payout has grown more than sevenfold over that time -- yet still only uses 11% of the company's net income.
Trading at just 12 times forward earnings, UFP is attractively priced to buy and wait (while getting paid) for a recovery in the housing and e-commerce industries.
3. Franklin Electric
Franklin Electric manufactures submersible pumps, motors, electronic controls, and water treatment systems as the market leader in groundwater pumping systems. Before your eyes glaze entirely over, it should be known that Franklin Electric has posted total returns over the last five and 20 years that have beaten the S&P 500 index.
Unfortunately, water scarcity around the globe shows no sign of relenting, barring a major technological breakthrough of some sort, making the company's array of products as precious as the water they help produce. Highlighting this point, Franklin Electric's sales grew 68% over the last three years before leveling off in 2023 due to wetter weather in the U.S.
With only around 25% of its water systems sales coming from developing countries, the company is well positioned to continue expanding globally as it helps these countries modernize and build water infrastructure.
The company pays a 0.9% dividend that only uses 20% of net income and has been raised for 28 years while recording a solid ROIC of 15%. Franklin Electric's price-to-earnings ratio of 23 looks very reasonable, considering its extended international growth runway and its history of successful tuck-in mergers and acquisitions.
4. Waste Management
As the market leader in one of the steadiest businesses in the world, garbage disposal, Waste Management's sheer scale gives it one of the most impenetrable moats on the market. Look no further than the company's near doubling of the S&P 500 index's total return since 2003.
Data source: YCharts
Despite being the market leader in its industry, Waste Management is not resting on its laurels. In fact, the company aims to roughly double its FCF to $4 billion by 2027.
By vertically integrating all of its core assets, such as its collections routes, landfills, gas-to-energy facilities, and material recovery facilities, Waste Management is uniquely positioned to excel in the renewable energy industry.
Already, the company turns the byproduct from its disposal operations into fuel for its compressed natural gas vehicles, which are now used on 74% of its routes. Furthermore, the company has plans to open 20 wholly owned renewable natural gas facilities by 2026, adding new use cases for its byproducts.
Despite the capital expenditures needed to launch these renewable energy efforts, Waste Management raised its 1.7% dividend for the 20th consecutive year while maintaining a ROIC of 11%. Trading at 15 times cash flow from operations, Waste Management's stable core operations and fledgling renewables business make for a perfect no-brainer stock to buy and hold for under $200.
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Josh Kohn-Lindquist has positions in UFP Industries and Waste Management. The Motley Fool has positions in and recommends Enphase Energy. The Motley Fool recommends UFP Industries and Waste Management. The Motley Fool has a disclosure policy.
